Delaware does not tax Social Security benefits, but it does tax most pension income

Delaware has one of the most favorable tax treatments for retirees in the country. Social Security benefits are completely exempt from Delaware state income tax — you will not owe state tax on those payments no matter your income level. Pension income, however, is taxed as ordinary income at Delaware's standard rates, which range from 2.2% to 5.75% depending on your total income.

This distinction matters because many retirees receive both Social Security and pension payments. You need to know which parts of your retirement income are taxable in Delaware and which are not, so you can plan your tax filing and understand what you actually owe.

Key Takeaways

  • Social Security income is completely exempt from Delaware state income tax, regardless of how much you receive or earn from other sources.
  • Pensions from private employers, government jobs, and military service are taxed as regular income at Delaware rates between 2.2% and 5.75%.
  • Delaware has no tax on retirement account withdrawals like IRAs or 401(k)s, but you still owe federal income tax on those withdrawals.
  • If you receive both Social Security and pension income, only the pension portion is subject to Delaware state tax.

What counts as pension income in Delaware

Delaware taxes any regular payment you receive from a pension plan, including military pensions, government employee pensions, and private employer pensions. This includes defined-benefit pensions (a fixed monthly amount) and distributions from defined-contribution plans like 401(k)s or 403(b)s that you take as regular income.

The tax applies whether you are still working or fully retired. If you receive a pension check while employed, that pension income is taxable. If you receive a pension and also work part-time, both the pension and your wages are subject to Delaware income tax.

One important exception: Delaware does not tax distributions from IRAs or 401(k)s if you are age 60 or older. This means if you are 60 or older and withdraw money from a traditional IRA or 401(k), you owe no Delaware state income tax on that withdrawal. You will still owe federal income tax, but Delaware will not tax it. This exemption does not apply to pension payments — those remain taxable regardless of your age.

Social Security is completely tax-free in Delaware

Unlike many states, Delaware taxes zero percent of your Social Security income. This applies to retirement benefits, survivor benefits, and disability benefits paid through Social Security. The amount does not matter — whether you receive $500 per month or $5,000 per month, none of it is subject to Delaware state income tax.

This exemption is separate from federal taxation. The federal government may tax your Social Security depending on your combined income (Social Security plus other income), but Delaware will not. You will still file a federal return if required, but your Delaware state return will not include Social Security as taxable income.

How Delaware income tax rates work for pension income

Delaware uses a progressive tax system, meaning the rate you pay depends on your total taxable income. For 2024, the rates range from 2.2% on the lowest income to 5.75% on the highest. If your only income is a pension, you pay tax only on that pension amount at the rate that applies to your income bracket.

Here is how it works in practice: if you receive a $30,000 annual pension and no other income, you would owe Delaware income tax on that $30,000 at the rate for that income level. If you also receive $20,000 in Social Security, your taxable income for Delaware purposes remains $30,000 — the Social Security does not push you into a higher tax bracket because it is not counted as income.

If you have pension income plus other income (wages, investment income, rental income), all of those are added together to determine your tax rate, but Social Security is still excluded from the calculation.

Military pensions and government employee pensions

Military pensions are taxed the same way as any other pension in Delaware — they are subject to state income tax at the standard rates. There is no special exemption for military service members or veterans. If you receive a military pension, you will owe Delaware income tax on it.

Government employee pensions (from federal, state, or local government jobs) are also taxed as regular income in Delaware. This includes pensions from teachers, police officers, firefighters, and other public employees. The only exception is the IRA/401(k) withdrawal exemption for those age 60 and older, which applies to government employees the same way it applies to private sector retirees.

Filing requirements and what you need to report

If you receive pension income, you must file a Delaware state income tax return if your income exceeds the filing threshold. For 2024, the threshold depends on your filing status and age, but generally you must file if your income is above a certain level. Contact the Delaware Division of Revenue or check their website for the current year's threshold for your situation.

On your Delaware return, you will report your pension income on the appropriate line. You will not report Social Security income anywhere on the return — it is completely excluded. If you received a 1099-R for your pension, that is the form you use to determine what to report. If you received a 1099-SSA for Social Security, you do not need to report that amount on your Delaware return.

Many retirees find it helpful to work with a tax preparer who knows Delaware rules, especially if they have multiple income sources. The Delaware Division of Revenue also offers free tax preparation assistance for low-income residents through the Volunteer Income Tax Assistance (VITA) program.

Planning your retirement income in Delaware

The fact that Social Security is tax-free while pensions are taxed means you may want to think about the order in which you claim benefits. If you have a choice between claiming Social Security early or waiting, and you also have pension income, waiting for Social Security does not increase your Delaware tax burden — it just increases your tax-free income.

If you are still working and receiving a pension, remember that both your wages and pension are taxable. Some retirees move to Delaware specifically because of the Social Security exemption, which can make a real difference if Social Security is a large part of your retirement income.

Frequently Asked Questions

Do I have to pay Delaware income tax on my military pension?

Yes. Military pensions are taxed as regular income in Delaware at the standard state rates. There is no military pension exemption. However, if you are age 60 or older and receive distributions from a military retirement account (like a Thrift Savings Plan), those distributions are not taxed by Delaware.

What if I receive both a pension and Social Security — how much do I owe?

You owe Delaware income tax only on the pension portion. Social Security is completely exempt. If your pension is $40,000 and Social Security is $25,000, you pay tax only on the $40,000. Your total income is $65,000, but only $40,000 is subject to Delaware tax.

Do I owe federal tax on my Social Security even though Delaware does not tax it?

Possibly. Delaware does not tax Social Security, but the federal government may. Whether you owe federal tax on Social Security depends on your combined income (Social Security plus other income like pensions, wages, or investment income). You will determine this on your federal return, not your Delaware return.

If I am 60 and withdraw money from my 401(k), do I owe Delaware tax?

No. Delaware does not tax 401(k) or IRA withdrawals for people age 60 and older. However, you will still owe federal income tax on the withdrawal. The Delaware exemption applies only to state tax.

Does Delaware tax my pension if I move there after I retire?

Yes. If you are a Delaware resident and receive pension income, that income is subject to Delaware state tax regardless of when you moved to the state or where you earned the pension. The tax applies to all residents on their Delaware-source income.