Most states tax pensions, but nine states don't tax them at all
Nine states have no income tax on pensions: Alaska, Florida, Illinois, Mississippi, Nevada, South Dakota, Tennessee, Texas, and Washington. Three additional states—Pennsylvania and Wyoming—tax very little or none of it depending on your age and when you earned the money. The remaining 38 states tax pensions as ordinary income, though many offer partial breaks for people over 59½ or those receiving military or government pensions.
The tax treatment depends on where you live when you receive the pension, not where you worked or where the pension is paid from. If you move to a no-tax state after retiring, you generally stop paying state income tax on that pension. If you move from a no-tax state to a taxing state, you start paying tax on it there.
Key Takeaways
- Alaska, Florida, Illinois, Mississippi, Nevada, South Dakota, Tennessee, Texas, and Washington impose no state income tax on any pension.
- Pennsylvania and Wyoming tax pensions minimally or not at all depending on your age and the source of the pension.
- The state where you live when you receive pension payments determines the tax you owe, regardless of where you worked.
- Many states that do tax pensions offer partial exemptions for military pensions, government employee pensions, or retirees over a certain age.
States with no pension tax at all
These nine states impose zero state income tax on pension income from any source—private employer pensions, IRAs, 401(k)s, and annuities:
| State | Tax Status |
|---|---|
| Alaska | No state income tax |
| Florida | No state income tax |
| Illinois | No state income tax on pensions |
| Mississippi | No state income tax on pensions |
| Nevada | No state income tax |
| South Dakota | No state income tax |
| Tennessee | No state income tax on pensions |
| Texas | No state income tax |
| Washington | No state income tax |
Illinois and Mississippi specifically exempted pensions from their income tax systems, while the other seven have no income tax at all. In all nine, you owe nothing to the state on pension withdrawals, regardless of the amount or the type of pension.
States with partial or minimal pension tax
Pennsylvania does not tax pension income if you are 59½ or older. If you are younger than 59½, Pennsylvania taxes your pension as ordinary income. This rule applies to all types of pensions—private, government, military, and IRA distributions.
Wyoming has no income tax but does impose a 2% tax on retirement account withdrawals (IRAs, 401(k)s, and similar accounts). However, Wyoming does not tax traditional pensions from employers or government sources. If your retirement income comes from a pension check rather than account withdrawals, you owe nothing.
How other states handle pensions
The remaining 38 states tax pensions as regular income at their standard state income tax rates, which range from about 2% to over 13% depending on the state. However, many of these states offer partial breaks:
- Military pension exemptions: About 20 states exempt military pensions entirely or partially, regardless of age.
- Government employee exemptions: Many states exempt or reduce taxes on pensions earned by state and local government workers, teachers, and police.
- Age-based exemptions: Some states exempt or reduce pension taxes for retirees over 55, 59½, or 62.
- Income limits: A few states exempt pensions below a certain income threshold, such as $12,000 or $20,000 per year.
The specifics vary widely. For example, New York exempts military pensions entirely but taxes other pensions. Missouri exempts pensions for people 59½ and older. Georgia exempts up to $35,000 of retirement income per year for those 65 and older. You need to check your specific state's rules, as they do not follow a single pattern.
What happens if you move between states
Your tax obligation follows your residency. If you retire in a state that taxes pensions and later move to a no-tax state, you stop paying state income tax on that pension starting the year you establish residency in the new state. The opposite is also true: if you move from a no-tax state to a taxing state, you begin owing state tax on your pension income.
Some states have tried to tax pensions earned by former residents, but courts have generally ruled this unconstitutional. Once you move, your old state cannot follow you. However, you must actually establish residency in the new state—simply owning property there or spending winters there is not enough. You typically need to register to vote, get a driver's license, and show that you intend to live there permanently.
Federal tax on pensions still applies everywhere
No state exemption removes your federal income tax obligation. The IRS taxes all pension income as ordinary income regardless of where you live. State tax breaks only reduce what you owe to your state, not to the federal government.
If your pension is from a traditional 401(k) or IRA, the full amount is taxable. If it is from a Roth account, withdrawals are generally not taxable. If it is from an employer pension, the taxable portion depends on how much you contributed versus how much the employer contributed. Your pension provider sends you a 1099-R form each year showing the taxable amount, which you report on your federal return.
Frequently Asked Questions
Can I move to a no-tax state just to avoid pension taxes?
You can move to a no-tax state, but you must establish genuine residency there. Simply buying property or spending part of the year there does not count. You need to register to vote, obtain a driver's license, and demonstrate intent to live there permanently. If the IRS or your old state audits you, they will look at where you actually lived, worked, and maintained ties.
What if I earned my pension in one state but now live in another?
The state where you live now determines the tax you owe. Where you worked and earned the pension does not matter. If you earned a pension in New York but moved to Florida, you owe Florida tax on it—which is nothing, since Florida does not tax pensions.
Do I have to pay federal tax on a pension even in a no-tax state?
Yes. State tax exemptions do not affect federal tax. The IRS taxes all pension income as ordinary income, and you report it on your federal return every year. Living in a no-tax state only saves you state income tax, not federal tax.
Does my pension get taxed differently if it's from Social Security instead of an employer?
Social Security is not a pension and is treated differently under both state and federal tax law. Some states that tax pensions do not tax Social Security. Check your specific state's rules, as they vary. Federal tax on Social Security depends on your total income and filing status, not on where you live.
What if I receive both a pension and a 401(k) withdrawal?
Both are taxed the same way in most states—as ordinary income. In states with partial exemptions, the rules usually apply to both. For example, if Pennsylvania exempts pensions for people 59½ and older, it also exempts 401(k) withdrawals for that age group. Check your state's specific rules, as some distinguish between employer pensions and retirement account withdrawals.