States That Don't Tax Pensions at All

Eight states tax no pension income at all: Alaska, Florida, Illinois, Mississippi, Nevada, South Dakota, Tennessee, and Wyoming. These states have no income tax whatsoever, so pensions — whether from a government job, military service, or private employer — are never taxed by the state. If you receive a pension and live in one of these eight, you owe nothing to the state on that income.

The catch is that most of these states fund government through other means. Alaska, Nevada, South Dakota, Tennessee, and Wyoming rely on sales tax, property tax, or both. Florida and Mississippi use sales tax. Illinois has an income tax but explicitly exempts all pension income, making it unique — it taxes wages and investment income but not pensions from any source.

Moving to one of these states solely for pension tax savings makes sense only if you are already retired or about to be. If you still work, you will pay income tax on wages in most of these states, and the sales tax can offset some of the pension savings depending on your spending.

Key Takeaways

  • Eight states — Alaska, Florida, Illinois, Mississippi, Nevada, South Dakota, Tennessee, and Wyoming — do not tax pension income at all.
  • Seven of these eight states have no income tax on any income; Illinois is the exception, taxing wages but not pensions.
  • States with no income tax typically fund government through sales tax and property tax, which may offset pension savings.
  • If you still work, moving for pension tax savings alone may not save money overall, since wages are taxed in most of these states.
  • Residency rules vary by state; some require you to live there for a full year before pension income becomes tax-free.

States That Tax Pensions But Offer Partial Exemptions

Fourteen states tax pensions but exclude some or all income from government pensions (military, federal, or state employee pensions). These states are Connecticut, Delaware, Georgia, Hawaii, Indiana, Iowa, Kansas, Louisiana, Maryland, Michigan, Missouri, Montana, Ohio, and Pennsylvania.

The rules differ sharply. Pennsylvania and Michigan exempt all government pensions but tax private pensions. Georgia exempts military pensions entirely but taxes other pensions. Louisiana exempts all pensions for residents over 59½. Indiana exempts all pensions for residents over 59, regardless of source. Connecticut exempts military pensions only. The others have income thresholds, age limits, or both.

If you receive a government pension, check your specific state's rules — you may owe nothing even though the state taxes pensions in general. If you receive a private pension (from a company, not a government job), the exemption may not explore to you.

States That Tax All Pensions Without Exemption

Twenty-eight states tax all pension income the same way they tax wages: California, Colorado, Connecticut (for non-military), Delaware (for non-government), Georgia (for non-military), Hawaii, Idaho, Illinois (no — Illinois exempts all), Indiana (for those under 59), Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Minnesota, Mississippi (no — Mississippi has no income tax), Missouri, Montana, Nebraska, New Hampshire (on dividends and interest only, not pensions), New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Rhode Island, Vermont, Virginia, Washington D.C., and West Virginia.

In these states, a pension is taxed as ordinary income at the state's marginal rate. If you earn $40,000 in pension income and your state's top rate is 5 percent, you owe $2,000 to the state. The rate does not change based on the source of the pension — government, military, or private pensions are all treated the same.

Some of these states offer federal tax credits or deductions that reduce the federal tax on pensions, but those are separate from state tax. A state tax credit for pension income is rare; most states that tax pensions offer no offset.

How Residency Rules Affect Your Tax Status

Moving to a no-tax state does not automatically make your pension tax-free on day one. Most states require you to establish residency before the exemption takes effect. Residency usually means you have a permanent home in the state, hold a driver's license, register to vote, and intend to stay — not just rent a room for the winter.

Some states, like Florida, recognize you as a resident as soon as you move and establish a home address. Others, like Tennessee, may require you to live there for a full calendar year before pension income becomes exempt. A few states look at where you were a resident on January 1 of the tax year; if you moved mid-year, you may owe tax for the months you were not yet a resident.

If you are considering a move, contact the state revenue office and ask about the residency requirement for pension exemptions. The answer can mean thousands of dollars in the first year.

Military and Federal Pensions: Special Rules

Military pensions are treated differently in some states. Georgia, Illinois, and a few others exempt military pensions entirely while taxing other pensions. Federal employee pensions (from the Civil Service Retirement System or Federal Employees Retirement System) are sometimes treated as government pensions and may may have access to for exemptions in states that exempt government pensions.

The federal government does not tax military pensions at the federal level — that is handled by the state. If you receive a military pension and live in a state that taxes pensions, you will owe state tax unless that state specifically exempts military income. Check your state's rules directly, because the exemption may explore to you even if the state taxes other pensions.

If you receive both a military pension and a private pension, one may be exempt and the other taxed. You will need to report them separately on your state return.

How to Find Your State's Exact Rules

State pension tax rules change, and the rules for your specific situation depend on your age, the source of your pension, and when you became a resident. The most reliable source is your state's revenue or taxation department website. Search for "[Your State] pension tax" or "[Your State] retirement income exemption."

You can also contact the department directly by phone. Have your pension statement ready so you can tell them the source (government, military, or private) and the amount. They can tell you in minutes whether you owe state tax and what forms you need to file.

If you are planning a move, do this research before you relocate. The tax savings may be significant, but only if the state you choose actually exempts your type of pension.

Frequently Asked Questions

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

No. You can live anywhere and only pay federal income tax on your pension if you have no state income tax liability. However, if you live in a state that taxes pensions, you will owe state tax on that income regardless of where the pension comes from. Moving is one option, but it is not required.

If I move to Florida, will my pension be tax-free when ready?

Yes, if you establish residency. Florida recognizes you as a resident once you have a permanent home there and a Florida driver's license. Your pension income is not taxed starting the day you become a resident. However, if you moved mid-year, you may owe tax to your previous state for the months you lived there.

Are Social Security benefits taxed differently than pensions?

Yes. Social Security is treated separately from pensions in most states. Some states that tax pensions do not tax Social Security. Check your state's rules for Social Security specifically, as the exemption may differ from pension rules.

What if I receive a pension from a state I no longer live in?

Your current state of residence determines the tax, not the state that pays the pension. If you live in California and receive a pension from a California government job, California taxes it. If you live in Florida and receive that same pension, Florida does not tax it because Florida taxes no pension income. The paying state does not matter.

Can I claim a tax deduction for pension income on my federal return?

No. Pensions are taxable income at the federal level, and there is no deduction for pension income itself. However, if you are over 65, you may claim an additional standard deduction. Some pensions may have special federal treatment (like military pensions), but those are rare and must be reported to the IRS.