What States Do Not Tax Pensions?

When it comes to how retirement funds and pensions are taxed across the United States, you’ll find that how those finances are managed will vary greatly, depending on which state you live in, and where those finances are located.

Some states will tax your pension distribution as a form of income tax, whereas others won’t tax income, but properties instead. Continue reading to find out what states do not tax pensions.

What States Do Not Tax Pensions?
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Generally speaking, the world of taxes and how they are handled can often feel like a dizzying system that is not meant to be understood, rather than a system that you are aware of, and can help determine

However, while learning how exactly your retirement is taxed can take some time to wrap your head around, one of the ways that you can start to get a grasp of it is how taxes and pensions are treated from state to state.

So, that is exactly what we are going to cover here!

In this guide, we are going to show you exactly which states do not tax your pension, as well as cover exactly how they are managed in these states.

Basics Of Pension Taxes

However, before we dive headfirst into this whirlpool of tax rules by state, we should probably first cover some grounding principles that will be useful to keep in mind going forward.

Can Pensions Be Taxed?

Perhaps one of the most important things to keep in mind is whether or not state pensions can be taxed in the first place.

If you’re looking for the short answer to this question, the answer would be: Yes… Usually. The long answer is that pensions are often subjected to taxation as a form of income tax.

This puts pensions as an income that can be categorized according to taxation in the same way that Social Security benefits and distributions form a 401k distribution plan.

The contributions you make through your income tax, and by extension, your pension and any other applicable income, become available to you once you reach retirement age.

So, if there is income tax in your state, you will be taxed on your pension.

However, this also opens up the possibility of whether or not the state that you live in even has an income tax. If it doesn’t then, by extension, your pension will not be taxed as a result.

There is also the fact that many states will also include exemptions for specific forms of income, such as not including social security benefits.

So, as you can see, the rules start to become a little blurry, so keeping track of them on a state-by-state basis is a must.

Income Tax Isn’t Everything

So, as a general rule, we have established that your pension is usually taxed in the same broad group as income tax. However, this isn’t the whole story.

After all, just because there is no income tax at a federal state level across the US, doesn’t mean that other states do not have some way of gathering taxes.

Many states with low or no income tax will often tax other assets that people may have higher amounts of sales or property tax, with their values.

Not only that, but you may find that places with lower income taxes may not have the services or resources that you would have in a state with higher income tax rates.

Services like public transportation, senior centers, and other similar programs are often less easily accessible in low-income tax states.

What States Do Not Tax Pensions

So, with those pieces of information out of the way, we can finally get to the part you have been waiting for!


Starting off this list is Alaska, that far-flung State in the far north.

Alaska is a state where no income tax is paid, meaning that many aspects and funds that this group encompasses, from Social security benefits and pensions, are not taxed when in this state.


Next, we have the home state of Illinois’s windy city. Now, Illinois does have an income tax, unlike many of the other states on this list.

However, Illinois has still been considered a tax-friendly state to retirees living here, as all forms of income that go towards retirement are exempt from income tax here, including Social Security benefits, your pension income, and even any retirement savings accounts that you may have in your name in this state.


Florida is more like Alaska than Illinois when it comes to income tax. In that, there isn’t any!

So, you’ll find that Florida is considered a very tax-friendly place for people who are approaching retirement, as do people’s Social Security benefits.

The same applies to many other funds, including 401ks, too.

Florida ranked in the top 10 tax-friendly states for retirees, so you may consider this state a retirement place in your older age.


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The state of Mississippi has an income tax, as many people there will be willing to tell you!

However, Mississippi is also in a very similar area of taxation, in that virtually all forms of pension income and taxes don’t happen in this state, making it a very popular state with retirees.

This exemption extends to many of the other factors that we have touched on, from Social security benefits to pension income to pension savings accounts as well.


Nevada is yet another state with no income tax, meaning that, like Alaska and Florida, this is a state where your pension and any associated funding sources will not be taxed, including Social Security, your pension funds, and other related sources, such as 401ls and financial services like that.

South Dakota

South Dakota is another state with no state income tax at all, so your pensions are, once again, free from needing to pay taxes at whatever rate you receive them.

Of course, this has no bearing on the property or sales taxes you may have to pay while living in a purchased property in this state the same applies to many other low or no-income taxed states), but at least your income won’t be directly affected!


Pennsylvania is another state where income tax rules and exemptions apply to pensions.

There is a rate of income tax in this state, but many of the exemptions we have already discussed, from pension funds to 401ks to Social Security benefits, are all exempt.


With no income tax at a federal level being established in this state, Tennessee is another state where your pension and related sources of income will not be taxed, at least at the federal level.


Yeah, a pattern is starting to emerge with these last few entries!

Texas is another state where there is no income tax at a federal level, so your pension funds will not be affected at this level (although you should check with your local county to make sure that there isn’t any taxation at the local level).


Washington, like many other states on this list, is a state where the federal income tax rate does not exist or is set to zero.

So, your pension will be unaffected by any federal taxation level, alongside the other exemptions we have discussed so far.


And last but not least, is the state of Wyoming.

Wyoming, like Texas, Washington, and the many states before it with no level of income tax, is another one where you do not need to worry about your pension funds being affected by it.

Other States Of Note

The states that we covered in the previous section are all states that have no form of income tax.

Many other states have generous cuts to the income tax paid through your pension, or exempt from it entirely.

Georgia, for example, is another state that has exemptions for Social Security benefits.

Plus, they also have potential exemptions that can reduce the amount that you pay on your pension by as much as 65,000 dollars!

Plus, keep in mind that many state laws on what is and isn’t included in income taxes, and what those rates are, will change with the mood and circumstances of the state itself.

Final Thoughts – The Bottom Line

So, the bottom line to understanding pension taxation in the US, is that 11 states will have some form of exemption on your pensions, either by exempting them specifically or by not having any rate of income tax in the state altogether.

And there are at least a few other states that have ways to help keep the amount you are taxed on your pension low so you can enjoy your retirement with your well-earned savings.

And that is what this is all about in the end, isn’t it? Ultimately, the final decision will rest on your shoulders as to where you want to set up shop for yourself when you retire.

Andre Flowers
Andre Flowers

Hello, my name is Andre Flowers and I have been a Licensed Real Estate Professional for over 24 years. I also carry several certifications, including: Certified Distressed Property Expert, Certified Global Business Professional, Certified Credit Repair Specialist.

As a current Mortgage Underwriter with 15 years of experience, I have seen my fair share of money-related issues. Whether that be high levels of debt, not enough credit, or simply a lack of funds - I’ve had clients who fit into these categories.

Here I will share tips, tricks, and experiences on how you can get yourself back in control of your finances.

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