Does Your State Charge a Premium Tax on Annuities?
Probably not. Only eight U.S. jurisdictions impose a premium tax on annuity purchases, and the rates run from 0.08% to 3.5%. The other 42 states, plus Washington, D.C., charge nothing. If you live in California, Colorado, Florida, Maine, Nevada, South Dakota, Wyoming, or Puerto Rico, a small tax may apply, and even then most qualified retirement annuities are exempt or taxed at a reduced rate.
What Is an Annuity Premium Tax?
A premium tax is a state-level tax on the money you pay into an annuity. It works like a sales tax on your premium, charged once when the contract is funded. Most states exclude annuities from this tax entirely, which is why it rarely comes up in a typical purchase.
Where it does apply, the tax is a percentage of your deposit. On a $100,000 annuity in a 1% state, that is $1,000. The insurance company remits the tax to the state and then recovers it, either by deducting it from your premium up front or from your account value when you annuitize.
This is separate from income tax. Premium tax is charged on the way in. Income tax is charged on the way out, when you take withdrawals or income payments. For how the payout side is taxed, see our guides on the annuity exclusion ratio and how cost basis affects what you owe.
Which States Charge an Annuity Premium Tax?
Eight jurisdictions tax annuity premiums. Here is what each one charges and the main exemption that applies.
| Jurisdiction | Premium Tax Rate | Main Exemption |
|---|---|---|
| Nevada | 3.5% | No tax on qualified pension, annuity, or profit-sharing plans |
| Puerto Rico | 3% | On direct business; excludes certain carriers serving educational institutions |
| California | 2.35% | Drops to 0.5% for qualified plans; 0% for structured-settlement funding |
| Colorado | 2% | Applies only to annuities subject to tax under state statute |
| Maine | 2% | No tax on certain historical, non-profit, or qualified annuities |
| Florida | 1% | No tax if the tax savings are credited back to annuity holders |
| Wyoming | 1% | No tax on qualified pension, annuity, or profit-sharing plans |
| South Dakota | 1.25% / 0.08% | 1.25% on first $500,000, 0.08% above; qualified plans taxed at 0% |
Three of the eight waive the tax on qualified retirement annuities (Nevada, Wyoming, and South Dakota), and California cuts its rate from 2.35% to 0.5% on qualified contracts. So the real-world bite is smaller than the headline rate for most retirement savers rolling over a qualified IRA or 401(k).
Annuity Premium Tax by State: Full 2026 Chart
The chart below lists every state, plus Washington, D.C., and Puerto Rico. “None” means annuities are excluded from the state premium tax base, or the state department of insurance does not tax annuity considerations.
| State | Premium Tax Rate |
|---|---|
| Alabama | None |
| Alaska | None |
| Arizona | None |
| Arkansas | None |
| California | 2.35% (0.5% qualified) |
| Colorado | 2% |
| Connecticut | None |
| Delaware | None |
| District of Columbia | None |
| Florida | 1% |
| Georgia | None |
| Hawaii | None |
| Idaho | None |
| Illinois | None |
| Indiana | None |
| Iowa | None |
| Kansas | None |
| Kentucky | None |
| Louisiana | None |
| Maine | 2% |
| Maryland | None |
| Massachusetts | None |
| Michigan | None |
| Minnesota | None |
| Mississippi | None |
| Missouri | None |
| Montana | None |
| Nebraska | None |
| Nevada | 3.5% |
| New Hampshire | None |
| New Jersey | None |
| New Mexico | None |
| New York | None |
| North Carolina | None |
| North Dakota | None |
| Ohio | None |
| Oklahoma | None |
| Oregon | None |
| Pennsylvania | None |
| Rhode Island | None |
| South Carolina | None |
| South Dakota | 1.25% / 0.08% |
| Tennessee | None |
| Texas | None |
| Utah | None |
| Vermont | None |
| Virginia | None |
| Washington | None |
| West Virginia | None |
| Wisconsin | None |
| Wyoming | 1% |
| Puerto Rico | 3% |
Source: National Association of Insurance Commissioners (NAIC) State Insurance Charts, Premium Taxation of Annuities, reviewed December 2025. This chart is a summary, not tax advice. Rates and exemptions can change, so confirm with your carrier before you buy.
How Much Does the Premium Tax Actually Cost You?
For most buyers, the answer is zero. For the handful of states that charge it, the cost is modest and one-time.
Example: Susan, 64, lives in Florida and moves $200,000 from a maturing CD into a 5-year MYGA. Florida’s 1% premium tax equals $2,000. Spread across the 5-year term, that is about $400 a year, or roughly 0.2% of her balance annually. It is real, but small next to the rate gap between a top carrier and a mediocre one.
Example: Margaret, 70, rolls a $300,000 IRA into an income annuity in California. Because it is a qualified contract, California taxes it at 0.5%, or $1,500, not the 2.35% non-qualified rate. Funding source matters as much as the state.
Who Pays the Premium Tax, the Insurer or You?
Technically, the insurance company remits the tax to the state. In practice, the cost is passed through to you. Carriers handle it one of two ways:
Front-end: the tax is deducted from your premium before it is credited, so a $100,000 deposit in a 1% state begins earning interest on $99,000.
Back-end: the full premium earns interest, and the tax is deducted later from the account value when you annuitize or surrender.
Most fixed and MYGA carriers build the tax into their pricing, which is one reason quoted rates can differ slightly by state. When you compare annuity rates by state, the rate you see already reflects how the carrier handles premium tax where you live.
How to Reduce or Avoid Annuity Premium Tax
You cannot pick a different state just for tax purposes. The tax follows your state of legal residence. But you do have a few levers:
Use qualified money where the exemption applies. In Nevada, Wyoming, and South Dakota, annuities funded from a 401(k) or IRA are taxed at 0%.
Know your residency. If you already live in one of the 42 states with no premium tax, there is nothing to plan around. You can also check which states do not tax retirement income, a far bigger factor for most retirees.
Weigh it against the rate, not in isolation. A half-point higher rate from a strong carrier almost always outweighs a 1% one-time premium tax. For help matching a contract to your situation, see how to buy an annuity, or compare today’s best rates.
Sources & Citations
National Association of Insurance Commissioners (NAIC), State Insurance Charts: Premium Taxation of Annuities, information reviewed December 2025.
IRS Publication 575, Pension and Annuity Income.
Investopedia, Premium Tax definition.
