Fifteen states fully exempt all pension income from state taxes, including private-sector, government, and military pensions. Eight of those states accomplish this by having no individual income tax at all, while the remaining seven have an income tax but carve out specific exemptions for retirement income. If you’re receiving or expecting a pension, living in one of these states means none of that income goes to your state government.
States With No Income Tax
The simplest path to tax-free pension income is living in a state that doesn’t tax any individual income. Eight states fall into this category:
- Alaska
- Florida
- Nevada
- New Hampshire
- South Dakota
- Tennessee
- Texas
- Wyoming
Because these states have no individual income tax, your pension, Social Security, 401(k) distributions, IRA withdrawals, wages, and investment income are all free from state income tax. New Hampshire is the newest addition to this group, having repealed its tax on interest and dividends as of 2025.
Washington is sometimes grouped with these states, but it’s a slightly different situation. Washington has no traditional income tax on wages, pensions, or most other income. However, it does tax capital gains income for high earners at a 9% rate. Your pension would still be untaxed there.
States That Tax Income but Exempt Pensions
Seven additional states levy an income tax on wages, business income, and other earnings but fully exempt pension and retirement income. These are particularly attractive for retirees whose income shifts heavily toward pensions and retirement accounts.
- Alabama
- Hawaii
- Illinois
- Iowa
- Mississippi
- Pennsylvania
- Washington
Illinois charges a flat 4.95% income tax, but it exempts pensions, Social Security benefits, IRA distributions, and 401(k) distributions entirely. Mississippi similarly exempts all of those retirement income sources while applying its 4% flat tax to other income above $10,000. Pennsylvania’s flat 3.07% rate applies to most income, but pensions, IRA and 401(k) distributions, and Social Security are all exempt.
The practical result in these states is that if your only income in retirement comes from pensions and Social Security, your state income tax bill could be zero, even though the state has an income tax that applies to your neighbors who are still working.
Why the Type of Pension Matters Elsewhere
Outside these 15 states, tax treatment often depends on what kind of pension you have. Many states offer partial exemptions or treat different pension sources differently. A common pattern is exempting government or military pensions while taxing private-sector pensions. Some states exempt a fixed dollar amount of pension income regardless of source, and others offer exemptions only to retirees above a certain age or below a certain income threshold.
If you have a government pension (federal, state, or local) or a military pension, you may find favorable treatment in states beyond the 15 listed above. But if you have a private-sector corporate pension, those broader exemptions often don’t apply. The 15 states listed here are notable because they exempt all pension types equally, whether your pension comes from a Fortune 500 company, a police department, or the armed forces.
Recent Changes Worth Knowing
State tax laws around retirement income have been shifting in a retiree-friendly direction in recent years. Iowa completed its phase-out of retirement income taxes, joining the full-exemption list. Starting in the 2026 tax year, Arizona expanded its exemption for veterans’ pensions to cover all veterans’ pension payments, not just disability pensions. Michigan also made changes for the 2026 through 2028 tax years that allow certain taxpayers born after 1952 who have reached age 67 to benefit from both the standard deduction and the Social Security deduction simultaneously.
These shifts reflect a broader trend of states competing for retirees, who bring spending power without adding demand for schools or workforce infrastructure. It’s worth checking your specific state’s current rules annually, as exemptions, thresholds, and phase-ins can change with each legislative session.
Federal Taxes Still Apply
Living in a state that doesn’t tax pensions eliminates one layer of taxation, but federal income tax still applies to most pension income. Traditional pension payments funded with pre-tax dollars are fully taxable at your ordinary federal income tax rate. The same goes for distributions from traditional 401(k) plans and traditional IRAs. Social Security benefits may be partially taxable at the federal level depending on your total income.
The state-level savings can still be significant. If you receive $40,000 per year from a pension and live in a state with a 5% income tax rate and no pension exemption, that’s roughly $2,000 per year in state taxes you’d avoid by living in one of the 15 states that don’t tax pensions. Over a 20-year retirement, that adds up to $40,000 or more in savings, before accounting for any other retirement income sources.
Choosing a State Based on Total Tax Picture
Pension tax treatment is just one piece of the puzzle. States that skip income taxes often make up revenue through higher property taxes or sales taxes. A state with no income tax but a property tax rate of 1.8% on a $300,000 home costs you $5,400 per year in property taxes alone. Meanwhile, a state that taxes pensions but has low property taxes and no sales tax could leave you with more money overall.
When comparing states, look at the full package: income tax rates and exemptions, property tax rates in the areas where you’d actually want to live, sales tax rates on everyday purchases, and any estate or inheritance taxes that could affect what you leave behind. Some states also exempt other forms of retirement income like Social Security or military disability pay, which can tip the balance depending on your specific income mix.