States That Tax Federal Pensions: A 2026 State-by-State Breakdown

The Big Picture

Nine states have no broad individual income tax, meaning they don't tax federal pensions, Social Security, or TSP withdrawals. Beyond those nine, how your FERS or CSRS annuity is treated varies widely. Some states fully exempt federal pension income. Others offer partial exclusions with income caps or age requirements. And a handful tax it just like any other income with no special treatment.

Where you retire can mean the difference between thousands of dollars in state tax annually and zero. Here's how it breaks down.

States With No Broad Individual Income Tax (9 States)

These states impose no broad individual income tax, so your FERS/CSRS annuity, TSP distributions, and Social Security are state-tax-free:

Alaska, Florida, Nevada, New Hampshire (taxes interest and dividends only, and this is being phased out), South Dakota, Tennessee, Texas, Washington, and Wyoming.

For federal retirees specifically, Florida and Texas are the most popular destinations in this group.

States With Full or Conditional Federal-Pension Exemptions

These states have an income tax but provide a full or conditional exemption for some federal government pension income:

• Alabama — all federal retirement benefits exempt
• Hawaii — employer-funded pension contributions exempt (your employee contribution portion was already taxed)
• Illinois — all federally qualified pension income exempt
• Kansas — FERS/CSRS annuities exempt for AGI under $75,000 (this is effectively a full exemption for most retirees)
• Louisiana — up to $6,000 exempt; the age-65+ retirement exemption is $12,000 for tax years beginning in 2025 and is adjusted annually
• Massachusetts — U.S. government pension income fully exempt
• Michigan — public pension income exempt for retirees born before 1946; partial exemption for later birth years
• Mississippi — all qualified retirement income exempt
• New York — federal pension income fully exempt under Tax Law § 612(c)(3)(ii), including TSP distributions. Rolled-over amounts to a commercial IRA retain exemption on the principal but not on subsequent IRA earnings
• North Carolina — fully exempt under the Bailey v. State settlement for employees with at least five years of qualifying service who were vested in the federal retirement system as of August 12, 1989. Retirees who vested after that date do not qualify
• Pennsylvania — all retirement income exempt once you reach retirement age
• Wisconsin — FERS pensions are exempt because they're integrated with Social Security. CSRS pensions became fully exempt under Senate Bill 281 for tax years beginning after 2023

States With Partial Exclusions

These states offer a pension exclusion or deduction, but it's limited by age, income, or amount:

• Colorado — $20,000 exclusion for ages 55-64; $24,000 for age 65+
• Connecticut — income-based phase-out; 100% exempt below AGI thresholds
• Delaware — $12,500 exclusion for age 60+ ($2,000 under 60)
• Georgia — $35,000 exclusion for age 62-64; $65,000 for age 65+
• Iowa — pension income exempt for retirees age 55+ (phased in recently)
• Kentucky — up to $31,110 exempt for service-funded retirement income
• Maryland — pension exclusion of up to $41,200 (2025) / $40,600 (2026) for retirees 65+ or totally disabled. Important: TSP rollovers to a commercial IRA lose eligibility for this exclusion
• Missouri — pension income deduction available; phasing toward full exemption
• Montana — limited pension exclusion based on filing status
• New Jersey — qualifying retirees age 62+ or disabled with total income up to $100,000 can exclude up to $100,000 of taxable pension, annuity, and IRA income; partial exclusions apply from $100,001 to $150,000
• Oklahoma — $10,000 exemption on qualifying retirement income
• Oregon — limited credit for retirement income
• South Carolina — $3,000 exclusion for all retirees; $10,000 for age 65+
• Virginia — age deduction of $12,000 per person for age 65+; income-based phase-out. A military retirement tax subtraction of up to $40,000 is also available

States That Fully Tax Federal Pensions

These states tax federal pension income the same as ordinary income with no special pension exclusion:

• California — no pension exemption; full state tax applies
• Minnesota — no pension exemption (Social Security is partially taxable here too)
• Nebraska — no pension exemption
• Vermont — no pension exemption
• West Virginia — no pension exemption (though Social Security exclusion is expanding)

The TSP Rollover Trap

Several states that exempt federal pensions have a critical rule: the exemption applies to distributions from the TSP (a federal plan), but if you roll your TSP balance into a commercial IRA, the exemption can disappear.

New York exempts TSP distributions but only exempts the principal portion of a rolled-over IRA — any earnings in the IRA are taxable (though they may qualify for the standard $20,000 pension exclusion for retirees 59½+).

North Carolina under the Bailey settlement exempts TSP distributions for retirees who meet the five-year service and pre-August 12, 1989 vesting requirements, but rolling those funds into a non-qualifying commercial plan strips the exemption.

Maryland offers its pension exclusion for defined benefit and defined contribution plans, but traditional IRAs, Roth IRAs, SEPs, and Keogh plans don't qualify. A TSP-to-IRA rollover means losing the Maryland pension exclusion on that money.

If you live in one of these states and are considering a TSP rollover, run the state tax numbers before moving money. The federal tax treatment of a rollover is neutral, but the state tax cost can be significant.

Planning Considerations for Relocating Retirees

If you're weighing where to retire partly on tax grounds, keep these factors in mind beyond the pension exclusion:

• Social Security taxation — most states that exempt federal pensions also exempt Social Security, but check both
• Property taxes — some no-income-tax states (Texas, New Hampshire) have high property taxes that offset the income tax savings
• State residency rules — most states define residency by domicile and 183-day rules; splitting time between two states can create dual-filing obligations

The Taxes on Federal Retirement toolkit includes a state-by-state tax directory covering pension exemptions, Social Security treatment, and TSP distribution rules across all 50 states — designed to organize your research before consulting a CPA in your destination state.