Delaware does not tax pension income, making it one of the most pension-friendly states in the country

If you receive a pension from a former employer, the military, or a government agency, Delaware will not tax that income at the state level. This applies to all pensions — military retirement pay, teacher pensions, corporate pensions, and public employee pensions all receive the same treatment. You will still owe federal income tax on your pension, but Delaware itself takes no state income tax on pension payments.

This exemption is permanent and does not depend on your age, how long you worked, or when you retired. A 55-year-old with a private sector pension and a 75-year-old with a military pension both pay zero Delaware state tax on those payments. The only requirement is that the income must be a true pension — a regular payment from a retirement plan — not a lump-sum distribution or withdrawal.

Key Takeaways

  • Delaware exempts all pension income from state income tax, regardless of the source or your age.
  • This exemption covers military pensions, government employee pensions, and private employer pensions equally.
  • You still owe federal income tax on your pension, and Delaware taxes other retirement income like IRA withdrawals and Social Security differently.
  • The pension exemption has no income limit and requires no special filing or documentation beyond your normal tax return.

What counts as pension income under Delaware law

A pension is a regular, recurring payment you receive from a retirement plan after you stop working. The payment must come from an employer-sponsored plan, a government retirement system, or the military. Monthly checks from a defined-benefit pension plan may have access to. Annuity payments from a may have access to retirement plan also may have access to.

Lump-sum distributions do not count as pension income for this exemption, even if you roll them into an IRA. If your former employer offers you a one-time payment instead of monthly pension payments, that lump sum is taxable by Delaware. Withdrawals from IRAs, 401(k)s, and Roth IRAs are also not covered by the pension exemption and may be taxable depending on the type of account and your age.

How Social Security and IRA withdrawals are taxed differently

While pensions are fully exempt, Delaware taxes other retirement income on its own schedule. Social Security benefits are not taxed by Delaware, which aligns with the pension exemption. However, withdrawals from traditional IRAs, SEP IRAs, and SIMPLE IRAs are taxable as ordinary income by Delaware.

Roth IRA withdrawals are not taxed by Delaware if the account has been open for at least five years and you are 59½ or older. If you withdraw from a Roth before meeting those conditions, the earnings portion is taxable. Distributions from 401(k)s and 403(b) plans are taxed as ordinary income by Delaware unless they are rolled into an IRA or another may have access to plan.

Federal tax obligations on your Delaware pension

The federal government taxes all pension income, regardless of which state you live in. You will owe federal income tax on your pension payments at your marginal tax rate. The IRS allows you to have taxes withheld from your pension check, or you can pay estimated taxes quarterly if you prefer.

When you file your federal return, your pension income is reported on Form 1099-R by your pension administrator. You report this on your federal tax return as ordinary income. Delaware's state exemption does not reduce your federal liability — it only eliminates the state portion of your tax bill.

Moving to Delaware for pension tax benefits

If you are retired and receiving a pension, moving to Delaware can reduce your overall tax burden compared to states that tax pensions. However, moving involves costs and life changes beyond tax savings. You should consider the full picture: housing costs, healthcare access, proximity to family, and climate alongside tax treatment.

If you move to Delaware after retiring, you become subject to Delaware tax law on the date you establish residency. This typically means registering to vote, obtaining a driver's license, and establishing a permanent home address in the state. You do not need to live in Delaware for any minimum period to claim the pension exemption — it applies from your first day of residency.

Reporting your pension on your Delaware tax return

When you file your Delaware return, you report your pension income on the appropriate line of the return form. Because the income is exempt, it does not reduce your taxable income for Delaware purposes. You still must report it so the state has a complete record of your income.

If you had Delaware state income tax withheld from your pension by mistake, you can claim a refund when you file. Keep your Form 1099-R and any pay stubs showing withholding. The Delaware Division of Revenue will process the refund once you file and they verify the withholding was improper.

Frequently Asked Questions

Do I have to be a Delaware resident to get the pension exemption?

Yes. You must be a Delaware resident on the date you receive the pension payment. If you move to Delaware after you retire, the exemption applies to payments received after you establish residency. If you move away from Delaware, payments received after you leave are taxable by your new state.

Does the pension exemption apply to survivor benefits my spouse receives?

Yes. Survivor pensions and beneficiary payments from a may have access to pension plan are treated the same as regular pension income and are exempt from Delaware state tax. The exemption applies regardless of who receives the payment, as long as it comes from a pension plan.

What if I receive both a pension and Social Security?

Both are exempt from Delaware state tax. You owe no Delaware tax on either income stream. You will still owe federal income tax on both, and the IRS has specific rules about how Social Security is taxed federally depending on your total income.

Can I deduct my federal income tax payments from my Delaware return?

No. Delaware does not allow a deduction for federal income taxes paid. You report your pension income, claim any other deductions you are may have access to to, and calculate your Delaware tax based on that adjusted income.

If I worked in Delaware but retired and moved away, do I still get the exemption?

No. The exemption applies only to Delaware residents. If you move out of state, your pension becomes taxable by your new state of residence. Some states also offer pension exemptions, so you may still owe no tax depending on where you move.