States That Don’t Tax Pensions: Which States Exempt Pensions From Income Tax

Trisha Miller  | 

When you work in a government or state provided job, you commonly receive a pension plan after working for the company for a certain amount of years. However, most traditional retirement plans are taxed in some fashion. Although, pensions, retirement plans offered by the government and/or state, have a completely different set of rules and regulations. In order to get ready for retirement, you should know how the state you live in handles your pension and if certain taxes apply to it.

Your Retirement Pension May Be Taxed as Income

If you’re getting close to retirement age, you might be wondering what your monthly income will look like. You probably have an idea of a general sum that may be awarded to you, but you might not be aware of what kind of taxation to expect. Tax laws can be completely different depending on which state you reside in. Some states choose to tax government pension plans, while others do not. In addition, some states defer their ruling to the federal level, meaning that they only tax (or don’t tax) according to what the federal laws suggest.

Another aspect you should be aware of has to do with the way your funds are viewed. When you receive a pension check, the state will evaluate what type of income it is. For example, your pension may be taxed as federal income, which may make it ineligible for a second taxation from your state. Or it could be the opposite, you may avoid federal taxation, but your state could choose to tax the pension as state income.

What States Don’t Tax Pensions?

When we discuss pensions here, it’s important to note that we’re talking about government issued pensions, not private or other types of retirement plans. Military and disability pensions, depending on your state’s laws, may also fall under a different category. As such, in this guide, we’ll only be listing states that do not tax general government pensions. You may need to research your situation further if you fall under the category of military, disability, or a private retirement plan. With that being said, here are the states that do not tax state pensions.

Many state and government pension plans fall under the untaxed bracket in this state. Check this list to see if your plan qualifies.

No personal income tax, pension benefits may be taxable federally.

No personal income tax, pension benefits may be taxable federally.

Pensions are exempt from state tax, but may be taxed federally.

State and government pension plans are not taxed by the state, but may be taxed federally.

Generally, pensions are not taxed as long as your plan meets state requirements to qualify as a defined contribution plan. Early disbursements may be subject to tax.

State does not tax pension plans, but they are subject to federal taxation.

Contributions made by employers to pension plans may be subject to tax.

State and government pension plans are not taxable by the state. If your pension is taxable, at age 59 ½ you may qualify for an exclusion of $20,000 of your pension funds to remain untaxed.

Removing funds from a retirement plan is subject to state tax unless you are 59 ½ years of age or older.

No personal income tax, but benefits are subject to federal taxation.

Pension plans are exempt from state tax, but may be taxed federally.

No personal income tax, pension benefits may be taxable federally.

No personal income tax, pension benefits may be taxable federally.

No personal income tax, but pension benefits are taxed federally.

Each state may have additional, but separate, regulations regarding your pension plan. It’s important to visit the websites we have provided in order to receive all pertinent information to you and your retirement. However, as of right now, these are the 15 states that currently do not tax pensions.

Pensions and retirement are subjects that we’ve covered in great detail on this site. As such, we highly suggest that if you have further questions about how a pension plan might work or other rules that may apply, take a look at some of the other guides we have compiled for you. We’ve compared pension plans to other retirement plans, discussed best methods of obtaining retirement funding,  and other more in depth explanations like survivor’s pensions.

Understanding your pension plan and what your income will look like with pension added is so incredibly important for a comfortable retirement. Understanding taxation is a big piece of the puzzle, so make sure that you do research with your state and possibly even speak to a state representative to ensure your pension status.

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Trisha is a writer and blogger from Boise, ID. She is a dedicated vegan, an avid gamer, cat lover, and amateur SFX artist.