Taxability of Retirement Benefits Varies From State to State
Currently, seven states do not tax individual income – retirement or otherwise: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
Two other states – New Hampshire and Tennessee – impose income taxes only on dividends and interest (5 percent flat rate for both states).
In the other 41 states and the District of Columbia, tax treatment of retirement benefits varies widely. For example, some states exempt all pension income or all pension income or all Social Security income. Other states provide only partial exemption or credits and some tax all retirement income.
States exempting pension income entirely for qualified individuals are Illinois, Mississippi and Pennsylvania.
States that exempt or provide a credit for a portion of pension income include: Arkansas, Colorado, Delaware, Georgia, Hawaii, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Missouri, Montana, New Jersey, New Mexico, New York, Ohio, Oklahoma, Oregon, South Carolina, Utah, Virginia and Wisconsin.
States where pension income is taxed include: Alabama, Arizona, California, Connecticut, District of Columbia, Idaho, Indiana, Kansas, Massachusetts, Minnesota, Nebraska, North Carolina, North Dakota, Rhode Island, Vermont and West Virginia.