Fourteen states currently have no tax on pension income

If you receive a pension, the state you live in determines whether that income is taxed. Fourteen states—Alaska, Florida, Illinois, Iowa, Kansas, Louisiana, Mississippi, Missouri, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming—do not tax pension income at all. This means retirees in these states keep the full amount of their pension checks without state income tax withheld.

The rules vary slightly by state. Some exclude all pensions from taxation. Others tax pensions but then allow a deduction or exemption that effectively eliminates the tax burden. A few have no state income tax at all, which means pensions are not taxed straightforward because nothing is taxed. Understanding which category your state falls into matters if you are considering a move or trying to plan your retirement income.

Key Takeaways

  • Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming have no state income tax, so pensions are not taxed there.
  • Illinois, Iowa, Kansas, Louisiana, Mississippi, and Missouri tax income but specifically exclude pension income from taxation.
  • The other 36 states tax pension income, though many offer partial deductions or exemptions based on age or income level.
  • Moving to a no-tax state for retirement can save thousands per year, but you should verify residency rules and consider property taxes and other costs.
  • If you receive both a pension and other retirement income like Social Security or investment gains, tax treatment may differ for each type.

States with no income tax at all

Eight states have no state income tax on any income, including pensions. These are Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. In these states, your pension is never subject to state income tax, regardless of the amount or the source of the pension.

This does not mean these states have no taxes. Most collect revenue through sales tax, property tax, and other fees. Some have higher property taxes or sales taxes than states with income tax. Before moving for tax reasons, compare the total tax burden in your current state against the total in the state you are considering.

States that tax income but exclude pensions

Six states have a state income tax but specifically exclude pension income from taxation: Illinois, Iowa, Kansas, Louisiana, Mississippi, and Missouri. In these states, you will pay income tax on wages, interest, and capital gains, but your pension checks are not taxed.

The exclusion applies to most traditional pensions and retirement account withdrawals. However, the rules can be specific about what counts as a pension. For example, some states may treat military pensions differently or have income limits above which the exclusion no longer applies. Contact your state's revenue department or tax office to confirm whether your particular pension qualifies.

How to verify your state's pension tax rules

The safest way to confirm whether your pension is taxed is to check your state's revenue or taxation website directly. Each state publishes its own rules, and they can change. Search "[your state] pension tax" or "[your state] retirement income tax" to find the official guidance.

Your pension provider—the organization that pays your pension—may also have information about state taxes. Some pension administrators provide a tax summary each year that shows what portion of your payment is taxable in your state. If you receive a pension from a government employer, the human resources or benefits office can often clarify the tax treatment in your state.

If you are planning to move, contact the tax office in the state you are considering before you relocate. Tax rules can change, and a state that does not tax pensions now might change that policy in the future. Confirming the current rules in writing protects you if a question arises later.

States that tax pensions but offer partial relief

The remaining 36 states tax pension income but often allow deductions, exemptions, or credits that reduce the tax burden. Many states exempt pensions for people over a certain age—commonly 55, 59½, or 65. Others allow a flat deduction amount or exclude pensions up to a certain dollar threshold.

For example, some states exclude the first $10,000 to $20,000 of pension income, or they allow an exemption for military pensions only. A few states have complex rules that depend on your total income, your age, or the type of pension. Because these rules vary widely and change periodically, you should review your state's current tax code or speak with a tax professional to understand your specific situation.

What counts as pension income for tax purposes

Pension income typically includes monthly payments from a defined-benefit pension plan—the kind that pays a fixed amount based on your years of service and salary. It also includes distributions from defined-contribution plans like a 401(k) or 403(b) if you are taking them as regular payments rather than a lump sum.

Social Security benefits are usually treated separately and have their own tax rules, which differ from pension tax rules. Investment income, interest, and capital gains are also taxed differently. If you receive multiple types of retirement income, each may be subject to different state tax treatment. A tax professional can help you understand how all your income sources are taxed in your state.

Moving for pension tax benefits: what to consider

If you are thinking about relocating to a state with no pension tax, remember that state income tax is only one part of your total tax picture. A state with no income tax may have higher property taxes, sales taxes, or both. Some states charge higher vehicle registration fees or have other costs that offset the income tax savings.

You will also need to establish residency in the new state, which typically requires living there for at least part of the year and meeting other requirements like obtaining a driver's license or registering to vote. Some states scrutinize whether someone has truly moved or is just claiming residency to avoid taxes. If you maintain a home in your former state, you may still owe taxes there on pension income. Consult a tax professional before making a move based on tax considerations.

Frequently Asked Questions

If I move to a no-tax state, do I owe taxes to my old state on my pension?

Not if you establish residency in the new state and no longer maintain a permanent home in the old state. However, if you keep a home in your former state or spend more than half the year there, you may still be considered a resident and owe taxes. The rules vary by state, so verify your situation with both states' tax offices before moving.

Does a state that doesn't tax pensions still tax Social Security?

Not necessarily. Some states that exclude pensions from taxation also exclude Social Security. Others tax Social Security but not pensions. You need to check your specific state's rules for each type of income, as they are separate.

If my pension is from a military or government job, are the tax rules different?

Some states treat military pensions differently from civilian pensions, and some exclude government pensions while taxing others. A few states exempt military pensions even if they tax civilian pensions. Check your state's rules or ask your pension administrator whether your specific pension qualifies for any special treatment.

Can I deduct pension taxes on my federal return if my state taxes my pension?

You cannot deduct state income taxes on your federal return under current law. However, you do report your pension income on your federal return regardless of whether your state taxes it. A tax professional can explain how your state taxes affect your federal filing.

What if I receive a lump-sum pension payment instead of monthly checks?

A lump-sum distribution is usually taxed differently than monthly pension payments. Some states that exclude monthly pensions may tax a lump sum, or the tax treatment may depend on whether you roll the money into a retirement account. Confirm the tax treatment of a lump sum with your state's tax office before you receive the payment.