If you want your pension check to arrive without a state tax bite, your options fall into three groups. Nine states don’t tax any income at all, so pensions are automatically safe. A smaller set of states that do have an income tax fully exempt pension distributions. And a larger group offers partial exemptions that can zero out the tax depending on your age and income. The states that don’t tax pensions, in the fullest sense, are the fourteen or so where a typical retiree pays nothing on retirement distributions at the state level.
The Nine States With No Income Tax
The cleanest answer is to live somewhere that doesn’t tax income in the first place. Nine states qualify in 2026: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. There are no age thresholds, no pension-specific forms, and no filing tricks. Whether your check comes from a private employer, a government pension system, or the military, the state takes nothing.
Florida’s protection is unusually durable because it’s written into the state constitution rather than the tax code, so it can’t be undone by a routine legislative vote.1Florida State University College of Law. Florida Constitutional Amendments of 1971 New Hampshire used to be a partial exception because it taxed interest and dividends, but that tax was fully repealed effective January 1, 2025.2New Hampshire Department of Revenue Administration. Repeal of NH Interest and Dividends Tax Now in Effect New Hampshire now taxes no form of personal income.
One thing to weigh: revenue has to come from somewhere. Sales and property taxes tend to run higher in these states. Tennessee and Texas both have combined state and local sales tax rates above 9%, and Texas property taxes are among the highest in the country. If you own a home and spend heavily on taxable goods, part of the savings on income tax gets clawed back through other channels.
States With Income Tax That Fully Exempt Pensions
Several states levy an income tax on wages and investment earnings but carve out pension distributions entirely.
Illinois
Illinois exempts all distributions from qualified employee benefit plans, IRAs, 401(k) accounts, government retirement systems, and military pensions.3Illinois Department of Revenue. Does Illinois Tax My Pension, Social Security, or Retirement Income? The statutory basis is Section 203(a)(2)(F) of the Illinois Income Tax Act.4Illinois General Assembly. 35 ILCS 5/203 Social Security is also exempt. A retiree whose income is almost entirely from retirement accounts can end up owing nothing to Illinois even though wages are taxed at a flat 4.95%.
Pennsylvania
Pennsylvania’s tax code excludes payments recognized as old-age or retirement benefits paid to people who retired after reaching a specified age or completing a stated period of employment.5Pennsylvania General Assembly. Pennsylvania Code 72 PS 7301 – Definitions The exemption covers eligible employer-sponsored plans, Social Security, and railroad retirement.6Department of Revenue. Gross Compensation The word “eligible” matters. If you take an early distribution before meeting your plan’s age or service requirements, Pennsylvania treats that money as taxable compensation at the state’s 3.07% flat rate.
Mississippi
Mississippi exempts qualified pension income from state income tax as long as the distribution isn’t based on early retirement. Private pensions, government plans, and most standard retirement vehicles are covered. Social Security is exempt as well.
Iowa
Beginning in 2023, Iowa exempts all retirement income from state tax for residents who are at least 55 years old, disabled, or a surviving spouse of a qualifying person. Iowa’s definition of retirement income is broad: defined benefit pensions, 401(k) and 403(b) distributions, IRAs, deferred compensation, and self-employed retirement accounts. Below age 55 and not disabled, the exemption doesn’t apply.
Alabama
Alabama exempts all distributions from defined benefit pension plans, whether private or public sector.7Alabama Legislature. Alabama Code 40-18-19 – Exemptions – Generally Military retirement is fully exempt.8Alabama Administrative Code. Alabama Administrative Code 810-3-19.01 – Exempt Retirement Allowances Defined contribution plans like 401(k)s and IRAs aren’t covered by the defined benefit exemption, though residents age 65 and older can claim a separate deduction of up to $12,000 on other retirement income. If your money comes from a traditional pension, Alabama won’t touch it. From a 401(k), check whether the age-based deduction covers your situation.
Michigan (Starting 2026)
Michigan phased in a retirement income exemption over several years, and 2026 is the first year the full exemption takes effect. Qualifying pension and retirement income is fully exempt from Michigan’s 4.25% income tax. Retirees who owed state tax under Michigan’s older, birth-year-based rules should see the difference on their 2026 returns.
States With Partial Pension Exemptions
A larger group of states taxes pensions but offers deductions or exclusions substantial enough to erase the bill for many retirees.
- New York: Residents age 59½ and older can exclude up to $20,000 of qualified pension and annuity income. Government pensions from New York State, local governments, and the federal government are fully exempt with no dollar cap. The exclusion is claimed on Line 29 of Form IT-201.9New York State Department of Taxation and Finance. Information for Retired Persons
- Georgia: Residents age 62 and older can exclude up to $65,000 per person ($130,000 for joint filers) of retirement income, including pensions, Social Security, and up to $4,000 of earned income.
- Kentucky: Up to $31,110 of pension, IRA, and 401(k) income can be excluded.
- Colorado: Residents age 55 to 64 can subtract $20,000 of retirement income; those 65 and older can subtract $24,000. Colorado passed legislation in 2025 that removes the pension income cap entirely for future tax years.
- South Carolina: Retirement income deduction of up to $10,000 for qualifying distributions.
- Virginia: Residents age 65 and older can claim an age deduction of up to $12,000. Social Security is fully exempt.
Thresholds move as states adjust for inflation or pass new legislation, so check your state’s revenue department each year before you file if your pension income sits near the exemption limit.
States That Exempt Only Government or Military Pensions
Some states divide public-sector and private-sector retirement. If you spent your career in government or the military, your pension gets favorable treatment. If you worked in the private sector, the same state may tax your distributions like ordinary wages.
Hawaii is the clearest example. Employer-funded pensions from public or private employers are exempt under Sections 235-7(a)(2) and (3) of the Hawaii Revised Statutes. The exemption disappears for any plan where the employee directed their own contributions, so 401(k)s, employee-funded IRAs, salary-reduction 403(b) arrangements, and 457 deferred compensation are all fully taxable. Even the federal Thrift Savings Plan is taxed because Hawaii treats it as a 401(k). Self-employed retirement plans are excluded from the exemption as well.10Department of Taxation State of Hawaii. Tax Information Release No. 96-5 – Taxation of Pensions Under the Hawaii Net Income Tax Law The distinction isn’t public versus private; it’s employer-funded versus employee-directed.
Kansas exempts its own state employee pensions through KPERS, and federal and military pensions are also exempt.11Kansas Public Employees Retirement System. KPERS and Taxes Private-sector 401(k) and IRA distributions are taxed as regular income.
Military retirees are the exception to most of these carve-outs. Most states now exempt military retirement pay in full, and the list is growing. California added a partial exemption in 2025, allowing a subtraction of up to $20,000 for retirees with adjusted gross income below $125,000 (single) or $250,000 (joint). Vermont expanded to a full exemption for retirees with income below $125,000.12U.S. Army Soldier for Life. State Tax Breaks Expand for Retired Soldiers and Survivors
Federal Tax Still Applies
Living in a state that exempts pensions doesn’t get you out of federal income tax. The IRS treats most pension distributions as ordinary income at your regular federal rate. For 2026, federal brackets range from 10% on the first $12,400 of taxable income for single filers up to 37% on income above $640,600.13Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
If you made after-tax contributions to your plan, a portion of each payment is a nontaxable return of your investment, calculated with the IRS simplified method. Pensions funded entirely with pre-tax dollars or employer contributions are fully taxable. Distributions before age 59½ can trigger an additional 10% early withdrawal penalty unless an exception applies, such as separation from service at age 55 or older, total and permanent disability, or substantially equal periodic payments.14Internal Revenue Service. Pensions and Annuities
Social Security Is a Separate Question
If your retirement income includes both a pension and Social Security, a state that exempts one doesn’t necessarily exempt the other. Nine states still tax Social Security to some degree in 2026, though most offer income-based exemptions that shield lower- and middle-income retirees. Colorado exempts the full federally taxable amount for residents 65 and older. Connecticut exempts benefits entirely for single filers with adjusted gross income below $75,000 and joint filers below $100,000. Minnesota offers a full exemption up to $84,490 for single filers and $108,320 for joint filers, with a phase-out above those levels. Montana, New Mexico, Rhode Island, and Utah each set their own thresholds. The remaining 41 states and the District of Columbia don’t tax Social Security at all.
Moving States Without Getting Audited
Federal law prevents your former state from taxing your retirement income after you move. Under 4 U.S.C. § 114, no state can impose income tax on retirement income of a person who is not a resident or domiciliary.15Office of the Law Revision Counsel. 4 USC 114 – Limitation on State Income Taxation of Certain Pension Income The protection covers distributions from 401(a) qualified trusts, 403(b) annuities, IRAs, 457 deferred compensation plans, government plans, and military retired pay. For nonqualified deferred compensation, the protection applies only if payments are made over 10 years or more in substantially equal installments, or if the plan is an excess benefit plan with payments made after termination of employment.
The protection only works if you’ve actually changed your domicile. States losing high-income retirees have grown aggressive about auditing whether the move is real. Auditors look at where you spend the most nights, where your driver’s license and voter registration are, where your spouse and dependents live, where you keep personal property, and even cell phone location data and E-ZPass logs. Many states treat you as a resident if you keep a home there and spend more than 183 days in state during the year.
If you’re relocating to escape state pension tax, make the break clean. Update your license, register to vote, move your bank accounts, and actually spend the majority of your time in the new state. Half-measures invite an audit you’ll likely lose.
Claiming the Exemption on Your Return
Even in states that exempt pensions, you generally still have to file a return and show where the exemption applies. Start with your IRS Form 1099-R, which reports the gross distribution in Box 1, the taxable amount in Box 2a, and a distribution code in Box 7 that identifies the type of payment.16Internal Revenue Service. Instructions for Forms 1099-R and 5498 The distribution code matters because some state exemptions apply only to certain types.
Most states handle the exemption as a subtraction. You report your full federal adjusted gross income, then subtract the exempt pension amount on a designated line. In New York, that’s Line 29 on Form IT-201, capped at $20,000 for private pensions.17New York State Department of Taxation and Finance. Instructions for Form IT-201 Full-Year Resident Income Tax Return In Illinois, the full qualifying retirement income is subtracted on the IL-1040.3Illinois Department of Revenue. Does Illinois Tax My Pension, Social Security, or Retirement Income? Line numbers and instructions differ by state, so pull up the current-year return instructions before you file.
If your pension administrator withheld state taxes during the year and you’re entitled to a full exemption, filing your return is how you get that money back. Keep your 1099-R, proof of age if the state’s exemption has an age threshold, and residency documentation together in case the state has questions. An exemption you don’t claim is the same as writing the state a check you didn’t owe.