States That Exempt Pension Income From State Tax

Fifteen states currently do not tax pension income at the state level: Alaska, Florida, Illinois, Iowa, Kansas, Louisiana, Mississippi, Missouri, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. However, the rules vary significantly—some states exclude all pensions, while others exclude only government pensions or pensions from specific sources. New Hampshire and Tennessee, for example, tax interest and dividends but not pension or retirement account withdrawals. Illinois exempts all retirement income, including pensions, 401(k)s, and IRAs. The other states listed have no state income tax at all, which means pensions are not taxed straightforward because nothing is taxed.

If you receive a pension and are considering a move, or if you already live in one of these states, understanding the exact rules matters. A state that sounds pension-friendly might still tax other retirement income you depend on, or it might tax pensions from private employers but not government ones. The difference can mean thousands of dollars per year.

Key Takeaways

  • Fifteen states do not tax pension income, but the reason differs: some have no state income tax at all, while others specifically exempt pensions.
  • Illinois, Mississippi, and Pennsylvania exempt all pension income regardless of source, while New Hampshire and Tennessee tax only interest and dividends.
  • States with no income tax (Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming) do not tax pensions because they do not tax any income.
  • Your pension's source matters in some states—government pensions may be treated differently from private or military pensions.
  • Moving to a pension-friendly state for tax reasons should account for property taxes, sales taxes, and cost of living, which vary widely.

States With No Income Tax at All

Nine states have no state income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. Because these states do not tax any form of income—wages, investment returns, or pensions—your pension is automatically untaxed. However, these states often compensate with higher property taxes, sales taxes, or both. Florida and Texas, for instance, have no income tax but charge significant property taxes. Alaska has no state income tax and no sales tax, but property taxes and cost of living vary by municipality.

If you are retired and living primarily on pension income, a no-income-tax state can be attractive. But the total tax burden depends on where you spend money and what property you own. A retiree in Florida pays no income tax on a $50,000 pension but may pay more in property tax than a retiree in a state with moderate income tax and lower property values.

States That Specifically Exempt Pension Income

Six states tax income but specifically exempt pension income: Illinois, Iowa, Kansas, Louisiana, and Mississippi. Each has its own rules about what counts as a pension and what does not.

Illinois exempts all retirement income—pensions, 401(k) withdrawals, IRA distributions, and annuities—from state income tax. This applies to pensions from any source: government, military, or private employers. Illinois does have state income tax on wages and other income, but if you are retired and drawing only from retirement accounts, you owe no state income tax.

Mississippi exempts all pension income, including military pensions, government pensions, and private pensions. Like Illinois, it applies broadly regardless of the pension's source.

Iowa, Kansas, and Louisiana exempt pension income but often with limits. Iowa exempts military pensions and some government pensions but may tax private pensions depending on when you earned them. Kansas exempts military pensions and some federal pensions. Louisiana exempts military pensions and some government pensions. The specifics depend on your employment history and when you retired, so you should verify your situation with the state tax authority or a tax professional.

States That Tax Only Certain Types of Income

New Hampshire and Tennessee have state income tax but exempt pension and retirement account withdrawals entirely. New Hampshire taxes interest and dividends but not wages, pensions, or 401(k) distributions. Tennessee taxes interest and dividends but not wages, pensions, or retirement account withdrawals. Both states are attractive to retirees because pension income is completely untaxed, though you will owe tax on any interest or investment income you earn.

Pennsylvania also exempts all pension income from state income tax, though it does tax wages and other income. This makes Pennsylvania another option for retirees living on pensions.

How Pension Source Affects Taxation

In some states, the source of your pension determines whether it is taxed. Military pensions, government employee pensions, and private employer pensions are sometimes treated differently. A state might exempt military pensions but tax private pensions, or vice versa.

For example, in states that do tax pensions, military pensions are often fully or partially exempt. Federal employee pensions may be treated differently from state employee pensions. If you receive a pension from a private employer, you are more likely to owe state tax than if you receive a military or government pension. The rules vary by state, and they can change. If your pension comes from a specific source—military service, federal employment, state employment, or a private company—check with your state's tax authority to confirm your situation.

Taxes Beyond Income Tax

A state that does not tax pension income may still collect taxes in other ways. Property tax, sales tax, and estate tax vary widely and can offset the benefit of no income tax. Florida has no income tax but charges property tax. Washington has no income tax but imposes a capital gains tax on certain investment sales. Tennessee has no income tax but taxes interest and dividends. Before relocating for tax reasons, calculate your total state tax burden, not just income tax.

Some states also tax retirement account withdrawals differently than pensions. A state might exempt a traditional pension but tax IRA or 401(k) withdrawals, or vice versa. If your retirement income comes from multiple sources, you need to understand how each is taxed in your state.

How to Verify Your Pension's Tax Status

The safest way to know whether your pension is taxed in your state is to contact your state's department of revenue or tax authority directly. You can also consult a tax professional who works in your state. Bring your pension statement or a letter from your pension provider that shows the source of the pension (military, government, private employer) and the amount you receive annually.

If you are considering moving to a different state, contact that state's tax authority before you move. Tax laws change, and what is true this year may not be true next year. A conversation with a tax professional in your current state and your potential new state can clarify whether the move makes financial sense for your specific situation.

Frequently Asked Questions

If I move to a state that does not tax pensions, do I owe tax to my old state?

No, once you establish residency in a new state, you generally owe tax only to that state. However, some states tax pension income based on where you earned it, not where you live now. A few states tax military pensions regardless of where the retiree lives. Confirm the rules in both your old and new states before moving.

Are Social Security benefits taxed differently than pensions?

Yes. Social Security is handled separately from pensions at both the federal and state level. Most states do not tax Social Security benefits, but a few do. Pensions and Social Security are taxed under different rules, so a state that exempts pensions may still tax Social Security, or vice versa. Check your state's rules for both.

Does a state that does not tax pensions still require me to file a tax return?

It depends on the state and your total income. Some states require a return even if you owe no tax. Others do not. If you have income from sources other than pensions—interest, dividends, rental income, or wages—you may be required to file. Contact your state's tax authority to confirm whether you must file.

If I have a pension from a private company, will it be taxed differently than a government pension?

In many states, yes. Military and government pensions often receive preferential treatment or full exemption, while private pensions may be taxed. The rules vary by state. If your pension comes from a private employer, ask your state tax authority whether it is treated the same as a government pension.

Can I move to a no-tax state and avoid taxes on my pension?

Only if you establish legal residency there. States determine residency based on where you spend most of your time, where you own property, where you vote, and where you have a driver's license. If you claim residency in a no-tax state but spend most of the year elsewhere, your former state may challenge your residency and demand taxes. Establish residency genuinely before relying on a state's tax benefits.