Retiring Without Paying State Income Tax on Your Pension

In order to retire without paying state income tax on your pension, you will first need to determine whether you live in one of the seven states that do not have state income tax. Also, there are ten other states that don't have income taxes on federal, military or in-state government pensions.

• Determine whether you live in one of the seven states that have no state income tax. Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming have no state income tax. New Hampshire and Tennessee tax have only dividend and interest income.


• Consider the remaining 41 states, including DC that offers generous income tax breaks to retirees.  Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Michigan, Mississippi, New York and Pennsylvania are ten states that have no tax on federal, military and in-state government pensions. Kansas has a tax on pensions from other states.  Pennsylvania and Mississippi have no state income tax on all retirement incomes.


• Report your retirement income regardless whether you have to pay state or not to avoid tax fraud. Some states gives retirees special breaks based on their age or their income.  New Jersey allows retirees that are 62 years old or older with $100,000 or less to exclude $20,000 of their private-pension income from taxes.  New York allows retirees that are 59 1/2 years old and older to exclude $20,000 of their private or out-of-state public pensions from taxes regardless of their income.  Michigan lets retirees to exclude $43,440 of their private-pension income or $86,880 for married couples from taxes.