13 states broadly exempt pension income in 2026: the 9 states with no income tax on wages (Alaska, Florida, Nevada, NH, SD, Tennessee, Texas, Washington, Wyoming) plus Illinois, Iowa (55+), Mississippi and Pennsylvania (qualifying distributions). Others, including Alabama and Michigan, exempt certain pensions or cap the exemption.
At a glance
Key Facts
States with No Pension Tax (Full Exemption)
13 states in 2026: 9 no-income-tax states + IL, IA (55+), MS, PA (qualifying distributions); AL exempts defined-benefit pensions
Notable 2026 Change
Michigan: for 2026 all retirees can subtract combined public and private retirement benefits up to an inflation-adjusted cap ($65,897 single / $131,794 joint in 2025; higher in 2026)
States with Partial Exemptions
Georgia ($65k/person 65+), Maine ($49,824), Maryland ($40,600 65+), New York ($20k 59+), South Carolina ($10k 65+)
States That Mostly Tax Pensions
California, Minnesota, Oregon and Vermont tax most private pension income; Connecticut exempts pensions only below an AGI threshold
Social Security vs Pension Tax
42 states don't tax SS; only 13 broadly exempt pension income — these are not the same list
Introduction
Where you receive your pension can mean a difference of thousands of dollars per year in state income tax. Thirteen states broadly exempt pension income in 2026 — nine because they do not tax wages or retirement income, and four more because their income tax laws specifically carve out qualified retirement income. For retirees with significant pension income, choosing the right state for retirement can save thousands of dollars per year in state taxes.
This guide provides a complete state-by-state breakdown: which states are fully tax-free for pension income, which offer partial exemptions, and which states fully tax pensions at ordinary income rates. It also covers the important distinction between private pensions, government pensions, and military retirement — which are often treated differently. Use the Retirement Income Tax by State Calculator to compare states with your specific pension amount.
Section 01
States That Broadly Exempt Pensions in 2026
The following states exempt pension income in 2026, subject to the conditions noted:
State
Why Pensions Are Exempt
Note
Alaska
No state income tax
No income tax of any kind
Florida
No state income tax
No income tax of any kind
Nevada
No state income tax
No income tax of any kind
New Hampshire
No state income tax on income
Tax on interest/dividends being phased out; fully gone by 2025
South Dakota
No state income tax
No income tax of any kind
Tennessee
No state income tax
No income tax of any kind
Texas
No state income tax
Constitutionally protected
Washington
No state income tax
No income tax of any kind
Wyoming
No state income tax
No income tax of any kind
Illinois
Qualified pension income exempt
4.95% flat rate on wages; pensions/IRA/401k exempt
Iowa
Qualified pension income exempt (55+)
Must be age 55 or older or disabled
Mississippi
Qualified retirement income exempt
Early or excess distributions and separation pay do not qualify
Pennsylvania
Pension income exempt
Note: early withdrawal before 59½ may be taxed
Source: each state's revenue department individual income tax instructions (see the state-specific guides for links).
Section 02
States with Partial Pension Exemptions
Many states offer meaningful partial exemptions that significantly reduce — but don't eliminate — pension income tax:
State
Exemption
Conditions
Georgia
$65,000 per person (65+); $35,000 (62–64)
Also covers IRA, 401k, dividends, capital gains
Maine
$49,824 (2026)
Reduced by SS/railroad retirement received; income phase-out begins at $125,000 federal AGI single (2025 threshold; indexed after)
Maryland
$40,600 for taxpayers 65+
Employee-plan pension income only (IRAs do not qualify); reduced by Social Security received
New York
$20,000 for taxpayers 59½+
Applies to pension and annuity income
South Carolina
$10,000 (65+); $3,000 (under 65)
The $15,000 age-65+ deduction is reduced by the retirement deduction claimed (they do not stack)
Alabama
Defined-benefit pensions (government and private) and military retirement exempt
IRA/401(k) distributions are taxable except an age-65+ exclusion up to $6,000 per taxpayer
Section 03
Michigan's 2026 Change: A Capped Subtraction for All Retirees
Michigan's Public Act 4 of 2023 is the most significant 2026 change in retirement income taxation. After a phased implementation based on birth year (2023–2025), for 2026 and later years all Michigan retirees — regardless of year of birth — can subtract combined public and private retirement benefits up to the inflation-adjusted cap.
The deduction limits (2025 amounts; 2026 is indexed higher):
Single filers: $65,897
Married filing jointly: $131,794
For retirees whose benefits fall under the cap, this can eliminate Michigan income tax on those benefits. Michigan's flat income tax rate is 4.25% and applies to income above the cap.
The following states (among others) tax pension income at ordinary income rates, with few or no special exemptions for retirement distributions:
California: 1%–13.3% on all pension, IRA, and 401k income (Social Security exempt). The highest-income-tax state in the US.
Oregon: 4.75%–9.9% on pensions and retirement account withdrawals (Social Security exempt)
Minnesota: Progressive rates up to 9.85% on most retirement income
Vermont: Up to 8.75% on most pensions; Social Security is exempt below an AGI threshold and phased out above it
Connecticut: Pension and annuity income is exempt below an AGI threshold ($75,000 single / $100,000 joint) and phased out above it; partial Social Security exemption
For high-income retirees in these states, the annual tax burden can be substantial. A single retiree with $150,000 of pension income in California would owe roughly $9,561 in California income tax for 2026 (standard deduction, no other income).
Section 06
Worked Example: $60k Pension in 5 Different States
How much state income tax does a single retiree aged 67 pay on a $60,000 annual pension with $0 Social Security?
State
Pension Exemption
Taxable Pension
State Income Tax
Florida
$60,000 (no income tax)
$0
$0
Illinois
$60,000 (fully exempt)
$0
$0
Georgia (age 67)
$60,000 (within $65k exclusion)
$0
$0
South Carolina (age 67)
$15,000 combined ($10,000 retirement deduction; the $15,000 age-65 deduction is reduced by it)
Pension Tax vs Social Security Tax: Not the Same List
An important point of confusion: the 42 states that don't tax Social Security and the 13 states that broadly exempt pensions are not the same list. Social Security exemptions are more common. Oregon, for example, exempts Social Security but fully taxes pensions. Connecticut exempts Social Security and pensions only below AGI thresholds. When planning retirement income tax, you need to look at both your Social Security and your pension treatment separately.
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Which states have no tax on pension income in 2026?
13 states broadly exempt pension income in 2026: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming (because they have no income tax on wages), plus Illinois, Iowa (for retirees 55+), Mississippi, and Pennsylvania (qualifying distributions). Michigan allows a capped retirement subtraction, and Alabama exempts defined-benefit pensions (government and private) and military retirement.
Q
Does Illinois tax pension income?
No. Illinois exempts qualified employee benefit plan income — including pensions, IRA distributions, and 401(k) distributions — from its 4.95% flat income tax. Illinois taxes wages and most other income at 4.95%, but retirement distributions from qualified plans are fully exempt. This makes Illinois significantly more retirement-friendly than its income tax rate alone would suggest.
Q
Does Pennsylvania tax pension income?
Pennsylvania generally does not tax pension income from qualified retirement plans, including traditional pensions, IRA distributions, and 401(k) distributions. However, early withdrawals taken before age 59½ may not qualify for the pension exemption and could be taxable. Pennsylvania's flat income tax rate is 3.07%, one of the lowest in states that have income tax.
Q
What states partially exempt pension income?
Notable states with partial pension exemptions include: Georgia (up to $65,000/person for ages 65+, $35,000 for ages 62–64), Maine (up to $49,824 for 2026, minus Social Security and railroad retirement benefits received), Maryland ($40,600 for taxpayers 65+), New York ($20,000 for taxpayers 59½+), and South Carolina ($10,000 for those 65+). Several other states offer smaller deductions or income-tested exemptions.
Q
Does Michigan still tax pension income in 2026?
Michigan's retirement subtraction changed under Public Act 4 of 2023: for 2026 and later, all retirees regardless of year of birth can subtract combined public and private retirement benefits up to an inflation-adjusted cap ($65,897 single / $131,794 MFJ in 2025; higher for 2026). Income above the cap is taxed at Michigan's 4.25% flat rate.
Q
What's the difference between pension tax and Social Security tax by state?
They are different and the exemption lists overlap but don't match. 42 states don't tax Social Security, but only 13 states broadly exempt pension income. Oregon, for example, exempts Social Security but taxes most pensions at up to 9.9%. Connecticut exempts Social Security and pensions only below AGI thresholds. Always check both your Social Security treatment and your pension/IRA treatment separately when comparing states.
Q
Which state is best for retirement pension income?
For pension income specifically, the best states are those with no income tax (Florida, Texas, Nevada, etc.) or broad pension exemptions (Illinois, Mississippi, Pennsylvania). Among states with income tax, Georgia offers the best package at moderate income levels: up to $65,000/person excluded for those 65+, plus Social Security exempt, at a 4.99% flat rate.
Q
Do all states treat government and private pensions the same way?
No. Several states distinguish between government, military, and private pensions. Alabama exempts defined-benefit pensions (government and private) but taxes IRA/401(k) distributions beyond an age-65+ exclusion. Kansas exempts Kansas government, federal and military retirement but taxes private pensions. Illinois, Georgia, and Pennsylvania treat all qualified pensions equally regardless of source. Before planning a retirement move, check whether your specific type of pension is covered by the exemption in your target state.
Disclaimer:This guide is for educational purposes only and does not constitute tax advice. Tax laws are complex, vary by individual circumstances, and are subject to change. Always verify current rates with official state tax authorities and consult a qualified tax professional for advice specific to your situation.