States That Don't Tax Pensions at All

Eight states currently do not tax pension income: Alaska, Florida, Illinois, Mississippi, Nevada, South Dakota, Tennessee, and Wyoming. These states have no income tax at all, which means pensions are not taxed regardless of the source — whether from a public employee plan, military service, or private employer.

Three additional states tax income but specifically exempt pension income: Pennsylvania and Mississippi exclude most pension and retirement distributions from taxation. Pennsylvania does not tax distributions from IRAs, 401(k)s, or pension plans. However, the rules vary slightly by state and by the type of pension, so the amount you actually owe depends on where you live and what kind of pension you receive.

The tax treatment of your pension matters most if you are retired and living on that income as your primary source of money. If you are still working and receiving a pension from a previous job, state income tax on that pension reduces what you take home each month. If you are considering where to retire, pension taxation can shift your decision between states.

Key Takeaways

  • Eight states have no income tax at all, so pensions are never taxed there: Alaska, Florida, Illinois, Mississippi, Nevada, South Dakota, Tennessee, and Wyoming.
  • Pennsylvania does not tax pension income, and Mississippi exempts most retirement distributions, though the rules depend on the pension type and your age.
  • Even in states that tax pensions, federal tax still applies to most retirement income, so moving to a no-tax state does not eliminate all taxes.
  • Some states tax only part of your pension or only if your income exceeds a certain threshold, so you need to check your specific state's rules.

How Pension Taxation Works by State

States handle pension income in three ways: no tax at all, tax on all income including pensions, or tax on income but exempt pensions. The no-tax states are straightforward — you owe nothing to the state on any income. The states that exempt pensions often have conditions: you may need to reach a certain age, or the exemption may apply only to pensions from government jobs, not private employers.

For example, Illinois taxes income but does not tax retirement income, including pensions, IRAs, and 401(k) withdrawals. Pennsylvania does not tax IRA distributions or pension income at all. Mississippi does not tax retirement income if you are 59½ or older. The rules shift from state to state, and some states have changed their rules in recent years, so the status today may not match what you read five years ago.

If you receive a pension from a government job — such as a teacher, police officer, or military veteran — some states treat that differently from a private pension. A few states tax private pensions but not public ones. You need to know both where you live now and where you plan to retire, because the tax bill can be hundreds of dollars per month.

Federal Tax Still Applies in No-Tax States

Moving to a state with no income tax does not eliminate federal income tax. The IRS taxes most pension income at your federal tax rate, regardless of which state you live in. If you receive a pension of $3,000 per month, you will owe federal tax on that $3,000 even if you live in Alaska or Florida.

The federal tax rate depends on your total income and filing status. Some retirees with modest pensions owe little or no federal tax because the standard deduction covers their income. Others with larger pensions or additional income sources pay 12 percent, 22 percent, or more to the federal government. The state tax savings can still matter — if your state would have taken 5 percent and the federal government takes 12 percent, you save 5 percent by moving — but it is not a complete tax elimination.

You should also consider property tax, sales tax, and other state and local taxes when deciding where to retire. Some no-income-tax states have high property taxes or sales taxes that offset the pension tax savings. Alaska and Nevada have no sales tax, but Florida and Tennessee do. The total tax picture depends on your spending, where you own property, and what kind of income you have.

States That Tax Pensions With Age or Income Limits

Several states tax pensions but allow exemptions based on your age or how much you earn. Colorado, for example, exempts pension income for people 55 and older. Kansas exempts military pensions and some retirement income. North Carolina taxes pensions but allows a deduction that phases out as your income rises.

These partial exemptions mean you may owe tax in one year but not the next if your income changes, or you may owe tax until you reach a certain birthday. The threshold ages vary — some states use 55, others use 59½, and some use 62. If you are close to one of these ages, the timing of your retirement can change your tax bill significantly.

You should request a tax summary from your pension provider that shows how much of your pension is taxable in your state. Many pension administrators can provide this information, and some will withhold state tax automatically if you ask. Knowing the exact amount before you retire helps you plan your budget and avoid surprises when you file your state tax return.

Military and Government Pensions

Military pensions receive special treatment in some states. A handful of states exempt military retirement pay entirely, even if they tax other pensions. These include Illinois, Mississippi, and several others. If you are a military retiree, check your specific state's rules because the exemption may not apply to civilian government pensions or private pensions.

Government employee pensions — from teachers, police, firefighters, and other public workers — are sometimes taxed differently than private pensions. A few states tax private pensions but not public ones, or vice versa. If you worked for a government agency and receive a pension, you need to know whether your state treats that as taxable income or not.

The rules also depend on when you retired and when you started your job. Some states grandfather in older retirees, meaning people who retired before a certain date pay no tax, but newer retirees do. If you are considering a move to a different state, contact the tax authority in that state and provide your pension type and start date to get a clear answer.

How to Find Out Your State's Pension Tax Rules

Your state's department of revenue or tax authority publishes the rules for pension taxation. You can find this information on their website by searching for "pension income" or "retirement income" along with your state name. Most states have a fact sheet or guide that explains which pensions are taxed and which are not.

If the website is unclear, you can call the department directly or email a question. Have your pension type, your age, and your total income ready when you contact them. They can tell you whether you will owe state tax on your specific pension and how much you should expect to pay.

Your pension provider can also help. When you start receiving your pension, ask the administrator whether they withhold state tax and, if so, how much. You can adjust the withholding amount if you want to pay more or less each month. Some people choose to have no state tax withheld and then pay it all at once when they file their tax return, while others prefer to have it taken out automatically.

Planning Your Retirement Around Pension Taxes

If you have flexibility in where you retire, the state's pension tax treatment can affect your long-term finances. A retiree living on a $40,000 annual pension might pay $2,000 or more per year in state income tax in a high-tax state, but nothing in a no-tax state. Over 20 years of retirement, that difference adds up to $40,000 or more.

However, moving for tax reasons involves other costs and trade-offs. You may have family, friends, or community ties in your current state. Housing costs, healthcare access, and climate are often more important to retirement happiness than tax savings. Some people move to a no-tax state for a few years to reduce their tax bill, then move back when they want to be closer to family.

If you are considering a move, calculate your actual tax bill in both states before deciding. Use your pension amount, any other income you expect, and your filing status to estimate what you will owe. Then factor in the cost of moving, the difference in housing prices, and any other expenses that vary between states. The tax savings may be real, but they are only one piece of the decision.

Frequently Asked Questions

Do I have to move to a no-tax state to avoid paying tax on my pension?

No. You only pay state income tax in the state where you live. If you live in a state that taxes pensions, you owe tax there. If you move to a no-tax state, you stop owing state tax on your pension starting the year you move. However, you still owe federal tax regardless of where you live.

What if I receive a pension from one state but live in another?

You pay tax based on where you live, not where you worked. If you retired from a job in New York but now live in Florida, you owe no state income tax to Florida on your pension. You also do not owe tax to New York because you no longer live there. However, a few states have tried to tax pensions from government jobs even after you move, so check with both states if your pension is from a public employer.

Can I reduce my pension taxes by having more withheld?

Withholding does not reduce your taxes — it just changes when you pay them. If you owe $2,000 in state tax for the year, you can have that $2,000 withheld from your pension checks throughout the year, or you can pay it all when you file your tax return. Either way, you owe the same amount. Withholding is useful for avoiding a large bill at tax time, but it does not lower what you owe.

Are Social Security benefits taxed differently than pensions?

Yes. Social Security is treated differently than pensions in most states. Some states that tax pensions do not tax Social Security. A few states tax both, and some tax neither. If you receive both a pension and Social Security, check your state's rules for each one separately, because the tax treatment is not always the same.

If I move to a no-tax state, when do I stop paying tax on my pension?

You stop paying state income tax the year you move and establish residency in the new state. Most states consider you a resident once you move there and intend to stay, though some require you to live there for part of the year. You may owe tax to your old state for the part of the year you lived there before moving. File a part-year resident return in both states for the year you move.