Annual Review: How Do States Tax Retirement, Pension, and Social Security Income?

States take different approaches to the tax treatment of retirement, pension, and Social Security income. Some states:

  • impose no income tax on retirement, pension, and other income;
  • exempt all or some retirement, pension, and Social Security income;
  • provide credits for retirement and pension income; or
  • tax all retirement and pension income.

How does your state stack up against other states? Are there other taxes you should consider as you plan for retirement? These are questions you need to ask your tax advisor.

What States Do Not Tax Retirement Income?

7 states do not tax individual retirement or other income.

Alaska Florida Nevada
South Dakota Texas Washington
Wyoming  

2 states tax only dividend and interest income.

New Hampshire Tennessee

4 states exempt all or most retirement income.

Illinois Hawaii Mississippi
Pennsylvania  

What States Tax Some Retirement Income?

27 states tax some, but not all, retirement or pension income. Many of these states limit the exemption amounts based on Adjusted Gross Income (AGI) thresholds.

Alabama Arizona Arkansas
Colorado Connecticut Delaware
Georgia Indiana Iowa
Kansas Kentucky Louisiana
Maine Maryland Massachusetts
Michigan Missouri Montana
New Jersey New Mexico New York
Oklahoma Rhode Island South Carolina
Virginia West Virginia Wisconsin

3 states provide a credit for retirement or pension income.

Ohio Oregon Utah

What States Tax All or Most Retirement Income?

7 states and the District of Columbia tax all or most private retirement or pension income.

What States Tax Social Security Income?

California Idaho Minnesota
Nebraska North Carolina North Dakota
Vermont

13 states tax some or all Social Security income. Most of these states exempt a part of this income based on AGI thresholds.

Colorado Connecticut Kansas
Minnesota Missouri Montana
Nebraska New Mexico North Dakota
Rhode Island Utah Vermont
West Virginia  

What State Changes Took Place Over the Last Year?

Connecticut: Delayed an increase from 25% to 50% in the teacher retirement income exemption until January 1, 2021.
Indiana: Phases in a deduction for all military retirement income over a 4-year period beginning in 2019.
North Dakota: Established a deduction for all military retirement income for tax years beginning after 2018.

What Does the Future Look Like?

States have not yet responded to the changes made by the Setting Every Community Up for Retirement Enhancement (SECURE) Act that:

  • move the start date for required minimum IRA distributions to age 72;
  • end the 70 ½ age limit for IRA contributions;
  • shorten the distribution period for non-spouse inherited IRAs;
  • allow small employers to access large IRC 401(k) plans through pooled multiemployer plans;
  • add a new credit for small employers using auto-enrollment 401(k) plans; and
  • streamline the safe harbor for non-elective 401(k) contributions.

In most states, individuals determine income tax liability starting with their federal AGI. So, taxpayers start with the amount of retirement income included in federal AGI before any state adjustments.

By Tim Bjur, J.D.

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CCHTaxGroup

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