These states don't tax pension payouts
Retirees can also avoid paying taxes on some pension income in 27 states
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While pension payouts are a form of fully taxable income in most states, 14 states do not tax pension income at all.
Some companies pay their retired employees pensions, or regular payments, each month until the former employee dies, though only 14% of Fortune 500 companies gave new employees pension plans in 2019 compared to 59% in 1998, according to AARP.
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But 14 states don't tax pension payouts, and eight don't tax income at all. Here's the list:
- Alaska — no income tax
- Florida — no income tax
- South Dakota — no income tax
- Tennessee — no income tax
- Texas — no income tax
- Washington — no income tax
- Wyoming — no income tax
- Alabama — excludes pensions from income tax
- Illinois — excludes pensions from income tax
- Hawaii — excludes pensions from income tax
- Mississippi — excludes pensions from income tax
- Pennsylvania — excludes pensions from income tax
Even those who do not live in one of those 14 states can avoid paying taxes on some pension income in 27 states based on a retiree's adjusted gross income, according to tax publishing company Wolters Kluwer.
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Most Americans today rely on 401(k) contribution plans and Social Security funds for retirement. All but two of the 14 states that do not tax pension income also do not tax 401(k) income; Alabama and Hawaii do tax 401(k) income, according to AARP.