Which States Do Not Tax Pension Income?

Even if a state does tax your pension, most will at least give your pension some sort of tax benefit. However, many states will also treat public and private pension differently. Ten states (Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, New York and Pennsylvania) exclude federal, military and in-state government pensions from taxation. Kansas will tax public pensions from outside the state. Pennsylvania and Mississippi exempt all retirement income from taxation.

Seven states (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming) do not have a state income tax, which means your pension won’t be taxed. New Hampshire and Tennessee tax only your dividend and interest income above certain limits. This means your pension income would also be state tax free in those states.

California, Rhode Island and Vermont are not retirement-living friendly states. They fully tax pension and retirement income and they also have a high state tax. Connecticut and Nebraska also fully tax retirement income, though their state taxes aren’t as high.

Another type of pension many seniors receive is Social Security. Up to 85 percent of your Social Security benefits can be taxed at the federal level depending on your income. The District of Columbia and 27 states (Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, New Jersey, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina, Virginia and Wisconsin) don’t tax Social Security.

Though your pension may be safe from taxation in many states, you still need to consider other taxes in the state that will eat into your buying power. Property taxes, sales taxes and personal property taxes are just some of the additional taxes that can weaken your pension and lower your standard of living.