Pensions that are not taxed in Massachusetts

Massachusetts does not tax military pensions, federal employee pensions, or railroad retirement benefits at the state level. If you receive a pension from the U.S. military, the federal government (including the U.S. Postal Service), or Amtrak or a freight railroad, Massachusetts will not charge you state income tax on that money. Most other pensions — including those from private employers, state governments outside Massachusetts, and local governments outside Massachusetts — are taxable in Massachusetts.

The key distinction is the source of the pension. Federal pensions and military service pensions are exempt because federal law prohibits states from taxing them. Other pensions are taxable unless you meet a specific age or income threshold that Massachusetts law creates.

Key Takeaways

  • Military pensions are completely exempt from Massachusetts state income tax, regardless of your age or income.
  • Federal employee pensions, including those from the U.S. Postal Service, are not taxed by Massachusetts.
  • Railroad retirement benefits paid by Amtrak or freight railroads are exempt from Massachusetts tax.
  • Private employer pensions and pensions from other states or municipalities are taxable in Massachusetts unless you are age 62 or older.
  • You must report all pension income on your Massachusetts tax return, even if none of it is taxable.

Military pensions and federal employee pensions

If you served in the U.S. military and receive a pension from the Department of Defense, that pension is not subject to Massachusetts income tax. This applies to all military branches — Army, Navy, Air Force, Marine Corps, and Coast Guard — and covers both active-duty and reserve pensions. The exemption is complete and does not depend on your age, how much you receive, or when you retired.

Federal employee pensions work the same way. If you worked for a federal agency and receive a pension from the Federal Employees Retirement System (FERS), the Civil Service Retirement System (CSRS), or any other federal pension plan, Massachusetts will not tax that income. This includes pensions from the U.S. Postal Service, the Veterans Administration, the Social Security Administration, and other federal departments.

These exemptions exist because federal law — specifically the Soldiers' and Sailors' Civil Relief Act and the federal pension protection statutes — prohibits states from taxing military and federal pensions. Massachusetts honors that prohibition.

Railroad retirement benefits

If you worked for a railroad and receive benefits from the Railroad Retirement Board, those benefits are not taxed by Massachusetts. This covers pensions from Amtrak, freight railroads, and commuter rail systems. Like military and federal pensions, railroad retirement benefits are protected from state taxation by federal law.

The Railroad Retirement Board administers two types of benefits: the railroad retirement annuity (similar to Social Security) and the railroad pension. Both are exempt from Massachusetts tax. You will still report these benefits on your federal tax return, but you do not include them on your Massachusetts return.

Private pensions and other taxable pensions

Pensions from private employers are taxable in Massachusetts. This includes pensions from corporations, nonprofits, unions, and other private organizations. If you worked for a company and receive a pension from its retirement plan, Massachusetts taxes that income.

Pensions from state and local governments outside Massachusetts are also taxable. If you worked for the State of New York or the City of Chicago and receive a pension from those employers, you owe Massachusetts tax on it. The only exception is if you are age 62 or older — then you can exclude up to $6,000 of pension income per year from taxation.

Pensions from Massachusetts state and local governments are treated differently. Those pensions are exempt from Massachusetts tax if you worked for a Massachusetts employer, regardless of your age. This applies to pensions from the Commonwealth of Massachusetts, Massachusetts cities and towns, and Massachusetts public authorities.

The age 62 pension exclusion

If you are age 62 or older, you can exclude up to $6,000 of pension income per year from your Massachusetts taxable income. This exclusion applies to private pensions and pensions from other states and municipalities — not to military, federal, or railroad pensions, which are already exempt.

The $6,000 limit is per person, not per pension. If you receive two private pensions totaling $8,000 per year, you can exclude $6,000 and pay tax on $2,000. If you receive $4,000 from one pension, you exclude all $4,000 and do not carry the unused $2,000 forward to the next year.

You claim this exclusion on your Massachusetts tax return by reporting the pension income and then subtracting the exclusion. You do not need to do anything special to claim it — the form itself has a line for the pension exclusion.

How to report pension income on your Massachusetts return

You report all pension income on Schedule B of your Massachusetts Form 1 (the state income tax return). This includes pensions that are exempt from tax. You list the gross amount you received, then subtract any exclusions you are may have access to to claim.

Your pension provider will send you a Form 1099-R showing the amount paid to you during the year. Use that form to fill out Schedule B. If you have multiple pensions, list each one separately.

Even if all your pension income is exempt — for example, if you receive only a military pension — you still file a Massachusetts return and report the income. The return shows that you have income but that it is not taxable in Massachusetts.

Frequently Asked Questions

Is my federal employee pension taxed by Massachusetts if I live out of state?

No. Federal employee pensions are exempt from Massachusetts tax regardless of where you live. If you move out of Massachusetts, you do not owe Massachusetts tax on a federal pension. However, you may owe tax to the state where you now live, depending on that state's rules.

Can I exclude part of my private pension if I am under 62?

No. The $6,000 pension exclusion is only available if you are age 62 or older on December 31 of the tax year. If you are 61, you cannot use the exclusion. Once you turn 62, you can claim it on your next return.

What if I receive both a military pension and a private pension?

The military pension is not taxed. The private pension is taxable, but if you are age 62 or older, you can exclude up to $6,000 of the private pension income. Report both on Schedule B and apply the exclusion only to the private pension.

Do I owe Massachusetts tax on a pension from a Massachusetts city if I move out of state?

Massachusetts taxes pensions from Massachusetts employers only if you are a Massachusetts resident when you receive the income. If you move out of Massachusetts, you do not owe Massachusetts tax on a Massachusetts public pension. You will owe tax to your new state of residence, depending on its rules.

Is my spouse's federal pension taxed if we file jointly?

No. Federal pensions are exempt for the person who receives them, regardless of how you file. If your spouse receives a federal pension and you file a joint return, that pension is not taxed. Your own income is still taxed normally.