Which states have no tax on pensions

Thirty-nine states do not tax at least some forms of pension income. However, the rules vary widely: some states exclude all pensions from taxation, while others exempt only military pensions, government employee pensions, or pensions from certain employers. A few states tax pensions but offer credits or deductions that reduce the actual tax owed. The state where you live when you retire matters more than the state where you worked.

The states with the broadest pension exemptions are Alaska, Florida, Illinois, Mississippi, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming — these states have no income tax at all, so no pensions are taxed. Pennsylvania and Illinois exempt all pension income from state tax. New Hampshire taxes only interest and dividends, not wages or pensions. The remaining states that don't tax pensions typically limit the exemption to military pensions, government employee pensions, or both.

Key Takeaways

  • Ten states have no income tax, so pensions are never taxed there regardless of source.
  • Pennsylvania and Illinois exempt all pension income, including private pensions, from state tax.
  • Most other states that don't tax pensions limit the exemption to military or government employee pensions only.
  • The state where you live in retirement determines which tax rules apply to your pension, not the state where you earned it.
  • Some states offer partial credits or deductions for pension income even if they technically tax it.

States with no income tax at all

Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax. This means no pensions are taxed, regardless of whether they come from a private employer, the military, or a government agency. If you receive Social Security, that is also not taxed in these states. Property tax, sales tax, and other taxes may still apply.

Mississippi and New Hampshire are sometimes included in this group with caveats. Mississippi has no income tax but does tax some retirement income through other mechanisms. New Hampshire has no income tax on wages or pensions but does tax interest and dividends at 5 percent.

States that exempt all pensions

Pennsylvania and Illinois exempt all pension income from state income tax, regardless of the source. This includes pensions from private employers, military service, federal government work, and state or local government work. You will still owe federal income tax on these pensions, but the state portion is zero.

In Pennsylvania, the exemption applies to all retirement income including IRAs and 401(k) distributions, not just traditional pensions. In Illinois, the exemption is broader still — it covers pensions, annuities, and distributions from retirement accounts. Both states still collect property tax and sales tax.

States that exempt military or government pensions only

Many states exempt only military pensions, government employee pensions, or both, while taxing private pensions normally. This group includes Arizona, Arkansas, Connecticut, Delaware, Georgia, Hawaii, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island, South Carolina, Vermont, Virginia, West Virginia, and Wisconsin.

The specifics differ by state. Some exempt only military pensions. Others exempt military and federal government pensions but tax state and local government pensions. Still others exempt all government pensions — federal, state, and local — but tax private pensions. You need to check your specific state's rules based on the source of your pension.

How to find your state's pension tax rules

Start with your state's department of revenue website. Search for "pension tax" or "retirement income tax" on that site. Most states publish a fact sheet or guide that lists which pensions are taxed and which are exempt. The document usually specifies whether the exemption covers military pensions, government pensions, or both.

If you receive a pension from a specific employer — the military, a state agency, a city, or a private company — contact that employer's pension office or benefits department. They often have a summary of tax treatment by state. You can also contact a tax preparer or CPA in your state; they handle this question regularly and can give you a direct answer for your situation.

What happens if you move to a different state

The tax rules of your new state apply to your pension income going forward, not the rules of the state where you earned the pension. If you worked for 30 years in a state that taxes pensions and then retire to a state that does not, your pension is not taxed in your new state. Conversely, if you move from a no-tax state to a state that taxes pensions, you will owe tax on that income starting in your new state.

Some states have reciprocal agreements with other states, but these are rare and usually apply only to government employees. The general rule is that your state of residence at the time you receive the pension income determines the tax treatment. If you are considering a move in retirement, the pension tax rules of your destination state should be part of your planning.

Frequently Asked Questions

Do I have to pay federal tax on my pension if my state doesn't tax it?

Yes. State and federal taxes are separate. If your state does not tax pensions, you still owe federal income tax on that pension income. The federal government taxes all pensions regardless of which state you live in. Your pension payer will send you a 1099-R form showing the amount subject to federal tax.

If I move to a no-tax state, can I avoid paying back taxes on pensions I received in another state?

No. You owed tax in the state where you lived when you received the income. Moving to a new state does not erase past tax obligations. If you received pension income while living in a state that taxes pensions and did not pay that tax, that state can pursue collection. You should consult a tax professional if you have unpaid state taxes from prior years.

Are Social Security benefits treated the same way as pensions for state tax purposes?

No. Social Security and pensions are taxed under different rules. Some states that tax pensions do not tax Social Security. For example, Illinois taxes neither pensions nor Social Security. Other states may tax one but not the other. Check your state's rules for both income types separately.

Does a military pension get taxed differently than a government employee pension?

It depends on the state. Some states exempt military pensions but tax government employee pensions. Others exempt both. A few states tax both. The source of the pension — military, federal civilian, state, or local government — determines the treatment in each state. Your pension payer or your state's revenue department can tell you which category your pension falls into.

What if I have pensions from two different sources in a state that only exempts one type?

Each pension is taxed according to its source. If you have a military pension and a private pension in a state that exempts only military pensions, the military pension is not taxed but the private pension is. You will report each on your state tax return separately. Your pension payers will send separate 1099-R forms for each pension.