Fourteen states have no tax on pension income at all

If you receive a pension and live in Alaska, Florida, Illinois, Iowa, Kansas, Louisiana, Mississippi, Missouri, Nevada, South Dakota, Tennessee, Texas, Washington, or Wyoming, your pension payments are not subject to state income tax. This is different from having no state income tax altogether — some of these states do tax wages and investment income, but they specifically exclude pensions from taxation.

The tax treatment of your pension depends on where you live when you receive the payments, not where you worked or where the pension is administered. If you move to one of these fourteen states after retiring, your pension becomes tax-free under that state's law. If you move away from one of these states, your pension may become taxable in your new state, depending on that state's rules.

Key Takeaways

  • Fourteen states — Alaska, Florida, Illinois, Iowa, Kansas, Louisiana, Mississippi, Missouri, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — do not tax pension income from any source.
  • Some of these states have no income tax at all, while others tax wages and investments but specifically exclude pensions.
  • Your state of residence when you receive pension payments determines whether those payments are taxed, not the state where you earned the pension.
  • Moving to a no-tax-on-pensions state after retirement can reduce your annual tax burden, but you should verify residency requirements with that state's tax authority.

How these fourteen states differ from each other

Not all fourteen states treat pensions the same way because they have different overall tax structures. Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax at all — they tax neither wages nor pensions nor investment income. If you live in one of these eight states, you pay no state income tax on any source of income.

Illinois, Iowa, Kansas, Louisiana, Mississippi, and Missouri do have state income tax, but they have carved out a specific exemption for pension income. These states tax your wages and investment earnings, but pension payments pass through untaxed. This means if you work part-time in retirement or have dividend income, that income would be taxable in these states, but your pension would not be.

The reason states create pension exemptions varies. Some do it to attract retirees; others have historical tax codes that predate modern income taxation. The practical result is the same: your pension check is not reduced by state withholding in any of these fourteen states.

What "pension income" includes and excludes

State pension tax exemptions typically cover defined-benefit pensions — the monthly checks you receive from a former employer's pension plan or a government retirement system. This includes military pensions, teacher pensions, police and fire pensions, and corporate pension plans. The exemption also usually covers annuities purchased with pension money if they are structured as pension income replacements.

The exemption does not cover retirement account withdrawals that are not pensions. Distributions from a 401(k), IRA, or 403(b) are generally not considered pension income, even if you funded them through your employer. Some states have separate exemptions for IRA and 401(k) withdrawals, but those are different rules. Social Security is also not a pension and is treated separately under federal law — states that don't tax pensions may or may not tax Social Security depending on their own rules.

If you receive a lump-sum payment from a pension plan instead of monthly payments, the tax treatment depends on how you receive it. If you roll it into an IRA, it becomes IRA money and is subject to that state's IRA rules. If you take it as a one-time payment, it may be taxed as ordinary income in states that tax pensions, but not in the fourteen states listed here.

Residency requirements and when the exemption applies

To receive the pension tax exemption in any of these fourteen states, you must be a resident of that state when you receive the pension payment. Most states define residency as having a permanent home in the state and spending more than half the year there, though the exact rules vary. Simply owning property in a state or having a mailing address there is usually not enough.

If you retire to one of these states, the exemption typically begins the tax year after you establish residency. You will need to file a state tax return for your first partial year to show your move-in date and claim the exemption. Some states require you to file a residency declaration or provide proof of residency, such as a lease, utility bill, or driver's license.

If you move away from one of these states, you lose the exemption in the year you leave. Your new state's rules then apply. Some states tax all pensions; others have their own exemptions. A few states have reciprocal agreements with other states, meaning they won't tax your pension if you moved there from a reciprocal state, but this is less common than you might expect.

How to verify your state's pension tax rules

Each state's tax authority publishes its own rules about pension taxation. The most reliable source is your state's department of revenue or tax commission website, where you can find the statute and any guidance documents. Search for "pension income exemption" or "pension tax treatment" on that site.

If you receive a pension from a government employer — federal, state, military, or local — contact that employer's pension office or benefits department. They can tell you whether your specific pension qualifies for the exemption in your state and whether they withhold state taxes. Some pensions are subject to special rules; for example, federal employee pensions have their own tax treatment that differs from private pensions in some states.

If you are considering moving to one of these states, contact the state tax authority before you move and ask for written confirmation of how your pension will be taxed. This takes a few weeks but prevents surprises on your first tax return. Bring documentation of your pension — a recent statement showing the annual amount and the source — so the tax authority can give you a specific answer.

Federal taxes still apply in all states

State pension tax exemptions do not affect federal income tax. No matter where you live, you must report your pension income on your federal tax return and pay federal income tax on it. The fourteen states listed here reduce your state tax burden, but your federal obligation remains the same.

If you have other income — wages, investment gains, Social Security — you may owe federal tax on that as well. Some retirees in these states have no state tax liability but still owe federal tax because their total income exceeds the federal threshold. Use the IRS worksheets or consult a tax preparer to determine your federal liability.

Frequently Asked Questions

If I move to one of these states after I retire, when does the exemption start?

The exemption typically begins in the tax year after you establish residency. You will need to show proof of your move-in date, such as a lease or utility bill dated before the tax year begins. Contact your state's tax authority for the exact residency requirements and any forms you need to file.

Does the pension exemption apply to my spouse's pension too?

Yes, if your spouse is also a resident of the state, their pension is also exempt. Both of you must meet the state's residency requirements. If only one spouse has moved to the state, only that spouse's pension is exempt in that state.

What if I receive a pension from a state I no longer live in?

Your current state of residence determines the tax treatment, not the state that pays the pension. If you live in one of the fourteen states listed, your pension is exempt regardless of which state or employer pays it. If you live elsewhere, your new state's rules apply.

Are military pensions treated the same as civilian pensions?

Military pensions receive the same state tax treatment as civilian pensions in these fourteen states — they are exempt. However, military pensions have special federal tax rules. Contact the Defense Finance and Accounting Service or your military retirement office for details on federal withholding and reporting.

Do I still have to file a state tax return if my only income is a pension in one of these states?

It depends on your state and your total income. Some states require you to file even if you owe no tax, to document your residency and claim the exemption. Others do not require a return if your only income is an exempt pension. Check your state's filing requirements or contact the tax authority to be sure.