Key Points Thirteen states don't tax retirement income at all. Another 41 states don't tax Social Security benefits. However, retirees must still pay federal taxes on their retirement income. The $23,760 Social Security bonus most retirees completely overlook › Many retirees might agree with the sentiment expressed in the Beatles' 1960s song, "The Taxman." The lyrics include, "If you drive a car, car, I'll tax the street. If you try to sit, sit, I'll tax your seat. If you get too cold, cold, I'll ...