Endnotes to Table 1

 

Alabama - Private defined benefit pensions are tax exempt. All out-of-state pensions are taxed the same as in-state pensions.

Arizona - All out-of-state pensions are fully taxed.

Arkansas - The total exemption from all pension plans cannot exceed $6,000 per taxpayer. The exemption refers to income from an employer-sponsored pension plan. With annuities and 401k plans, the portion that employers pay is taxable, while the portion the employees pay can be applied to the $6,000 exemption. Persons age 65 and over who do not claim the $6,000 deduction qualify for a $20 tax credit per taxpayer. A surviving spouse qualifies for the pension exemption. All out-of-state pensions are taxed the same as in-state pensions.

California - A senior head-of-household tax credit is available to taxpayers age 65 and over who meet the following qualifications: 1) did not have adjusted gross income over $43,687 for 1996; and 2) qualified as a head of household in 1994 or 1995 by providing a household for a qualifying individual who died during 1994 or 1995. The credit equals two percent of California taxable income up to $823. All out-of-state pensions are fully taxed.

Colorado - Pensioners must be age 55 and over to claim the $20,000 pension and annuity exemption. The $20,000 exemption affects qualified retirement income and includes qualified pensions, qualified annuities, Individual Retirement Account (IRA) distributions, Keogh plans, and Social Security benefits. All out-of-state pensions are taxed the same as in-state pensions.

Connecticut - All out-of-state pensions are fully taxed.

Delaware - Persons under age 60 receive a $2,000 pension exemption; persons age 60 and over receive a $3,000 pension exemption. The pension exemption covers pensions from employers. The total exemption from all retirement plans cannot exceed the $2,000 or $3,000 exemption.

Single taxpayers or married taxpayers filing separately who are 60 and over with an earned income of less than $2,500 and a Delaware adjusted gross income (AGI) of $10,000 or less are eligible to receive an additional $2,000 exemption.

Married taxpayers filing jointly, who are age 60 and over with an earned income of less than $5,000 and a Delaware AGI of $20,000 or less, are eligible to receive an additional $4,000 exemption. All out-of-state pensions are taxed the same as in-state pensions.

District of Columbia - Pensioners must be age 62 and over to qualify for the $3,000 exemption. All out-of-state pensions are fully taxed.

Georgia - Taxpayers age 62 and over or totally disabled can claim an income exemption, which includes all unearned income, such as pension income, annuities, interest, dividends, and capital gains, and the first $4,000 of earned income for a maximum exemption of $12,000 per taxpayer.

With married couples filing jointly, each spouse can exempt up to $12,000. All out-of-state pensions are taxed the same as in-state pensions.

Hawaii - Noncontributory private pension plans are tax exempt. With contributory private pension plans, earnings are taxed, while employee contributions are tax exempt. The private pension exclusion pertains to employer-funded pension plans. This includes profit-sharing, defined contribution, and defined benefit plans. All out-of-state pensions are taxed the same as in-state pensions.

Idaho - Pensioners must be age 65 and over or age 62 to 65 and disabled to qualify for the public pension exemption. Public pension exemption amounts are $14,976 (single filers) and $22,464 (married, filing jointly). These amounts are adjusted annually according to the maximum benefit under Social Security.

The exemption amounts are reduced by Social Security and Railroad Retirement benefits received. Allowable state/local pension exemptions include pensions from a city's police retirement fund or from the state's retirement fund for fire fighters. All out-of-state pensions are fully taxed.

Illinois - Exempt pension/retirement income includes government retirement or disability plans, qualified employee benefit plans (as defined in Section 402 through 408 or 457 of the Internal Revenue Code), Social Security benefits, IRA distributions, redemptions of U.S. retirement bonds, Railroad Retirement income, qualified annuities, and Keogh plans. All out-of state pensions are taxed the same as in-state pensions.

Indiana - Federal civil service pensioners must be 62 and over to claim the $2,000 pension exemption. The amount federal civil service pensioners may exempt is offset by Social Security and Railroad Retirement benefits received. Military pensioners must be 60 and over to claim the exemption. Limited tax credits are available to persons 65 and over. All out-of-state pensions are fully taxed.

Iowa - Taxpayers age 55 and over can claim an exemption of $3,000 (single filers) or $6,000 (married, filing jointly) from retirement plans including pension income. All out-of-state pensions are fully taxed.

Kansas - All out-of-state pensions are fully taxed.

Kentucky - Public pension income is fully tax-exempt, while private pension income is exempt on 50 percent of the pension income, not to exceed $12,500 for tax year 1996. Exempt private pension income includes private employer pension plans, IRA distributions, annuity income, and profit-sharing plan income.

Private pension exemptions will increase to 75 percent of pension income, not to exceed $18,750 in tax year 1997 and $35,000 in tax year 1998. For tax year 1999 and thereafter, the $35,000 exemption will be adjusted for inflation by the Consumer Price Index (CPI).

State, local, and federal employees retiring before January 1, 1998, will receive a full exemption of their public pensions. Those retiring after January 1, 1998, will receive an exemption of their public pension based on the amount of the individual's service time prior to January 1, 1998, compared to their total service time. All out-of-state pensions are fully taxed. At a minimum, public-sector retirees will be eligible for the same pension exemption as private-sector retirees.

Louisiana - Taxpayers must be 65 and over to qualify for the $6,000 (single filers) or $12,000 (married, filing jointly) private pension/retirement exemption. The private retirement exemption pertains to taxable IRA distributions, pension, and annuity income reported on lines 15b and 16b on federal Form 1040. Out-of-state pensions are fully taxed like in-state private pensions.

Maine - Taxpayers qualifying for the federal elderly tax credit may claim 20 percent of the federal credit as a Maine tax credit. All out-of-state pensions are fully taxed.

Maryland - Pensioners must be 65 and over and/or totally disabled to qualify for up to a $14,400 exemption that is reduced by Social Security and Federal Railroad Retirement benefits. Exempt income is pension, annuity, or endowment income from an employee retirement system (not including IRA distributions, Keogh plans, or deferred compensation plans). The exemption amount changes annually according to the maximum benefit received under the Social Security Act.

Military pensioners are eligible for an additional pension exemption of up to $2,500. To qualify, a pensioner must be 55 or over and be an enlisted member of the military at retirement. The exemption amount depends on federal adjusted gross income which has to be under $22,500 to qualify. All out-of-state pensions are taxed the same as in-state pensions.

Massachusetts - Most federal and state/municipal pensions are contributory and therefore, are fully exempt, while military and most private pensions are noncontributory and therefore are fully taxed. Massachusetts does not tax pension income of Massachusetts residents receiving contributory public pensions from other states provided those states do not tax pension income (from a Massachusetts contributory public retirement plan) of former Massachusetts state employees. Out-of-state noncontributory private pensions are fully taxed.

Michigan - Private pension income is exempt up to $31,920 (single filers) and $63,840 (married, filing jointly). Examples of exempt income are qualified pension income, IRA distributions (received after age 59 1/2), Keogh plan income, and qualified annuities (which are paid for life to taxpayers age 65 or older). To qualify for the exemptions, pension plans of private pensioners must define eligibility for retirement and set contribution and benefit amounts in advance.

Taxpayers age 65 or over who do not claim a pension exemption can exempt interest and dividends up to $1,064 (singles) or $2,128 (married, filing jointly) for 1996.

For tax year 1997, taxpayers age 65 or over can exempt interest, dividends, and capital gains up to $3,500 (single filers) and $7,000 (married, filing jointly). The amount of the exemption would be reduced by the amount of any pension exemption claimed.

Michigan has reciprocal agreements with other states. That is, if another state does not tax Michigan public sector pensions (all government levels) of former Michigan employees who are now citizens of another state, then Michigan will not tax Michigan residents who receive public sector pensions from other states. All out-of-state pensions are taxed the same as in-state private pensions.

Minnesota - Although Minnesota does not specifically exempt pension income, persons age 65 and over who qualify can exempt from any income source $9,600 (single filers) or $12,000 (married, filing jointly) less nontaxable Social Security benefits, Railroad Retirement benefits, and one-half of federal adjusted gross income (AGI) over $14,500 (single filers or married, filing jointly; one spouse is under 65 and one is 65 or over) or $18,000 (married, filing jointly; both spouses are 65 or over). Since nontaxable Social Security benefits are subtracted, those who benefit from this exemption are usually not receiving Social Security benefits, such as federal retirees.

To qualify for the above exemptions, one must meet the following economic requirements:
1) the AGI must be less than $33,700, and Railroad Retirement benefits and nontaxable Social Security benefits are less than $9,600 (single filers); 2) the AGI must be less than $42,000, and Railroad Retirement benefits and nontaxable Social Security benefits are less than $12,000 (married, filing jointly; both spouses are 65 or over); 3) the AGI must be less than $38,500, and Railroad Retirement benefits and nontaxable Social Security benefits are less than $12,000 (married, filing jointly; one spouse under 65). All out-of-state pensions are taxed the same as in-state pensions.

Mississippi - Retirement income that qualifies for the exemption includes public pension income, annuity income, IRA distributions, Keogh plan income, Simplified Employee Pension income, and deferred compensation plan income. All out-of-state pensions are taxed the same as in-state pensons.

Missouri - The $6,000 exemption for all state, federal, and military pensions is available if:
1) single filers earn less than $25,000 per year (Missouri AGI less federal taxable Social Security); or 2) married joint filers earn less than $32,000 per year (Missouri AGI less federal taxable Social Security); or 3) married separate filers earn less than $16,000 (Missouri AGI less federal taxable Social Security). All out-of-state pensions are taxed the same as in-state pensions.

Montana - The $3,600 exemption pertains to qualified pensions, annuities, Keogh plans, Simplified Employee Pension plans, deferred compensation, and IRA distributions. The exemption does not include premature distributions.

The $3,600 exemption is reduced by $2 for every $1 that the federal AGI exceeds $30,000. The exemption is entirely phased out when income reaches $31,800 (assuming a retirement income of $3,600 or more). All out-of-state pensions are taxed the same as in-state pensions.

Nebraska - Taxpayers qualifying for the federal elderly tax credit may claim the federal credit as a Nebraska tax credit. All out-of-state pensions are fully taxed.

New Jersey - Taxpayers must be 62 and over or disabled under Social Security to qualify for the pension exemption. Exemption amounts are $7,500 (single filers), $10,000 (married joint filers), and $5,000 (married separate filers). Pension income includes taxable pensions, annuities, and IRA distributions. Taxable pension plans, annuity plans, and IRA distribution income does not include employer contributions, which have already been taxed.

Taxpayers age 62 or over who do not claim the maximum pension exclusion may be able to exclude other types of income, such as wages, interest, and dividends. This retirement exclusion refers to taxpayers whose earned income is $3,000 or less. These taxpayers can use the unclaimed portion of their pension exclusion to exclude other types of income.

Taxpayers age 62 or over who who do not receive Social Security or Railroad Retirement benefits can exempt up to $3,000 (single filers or married, filing separately) or $6,000 (married joint filers) of taxable income. All out-of-state pensions are taxed the same as in-state pensions.

New Mexico - Taxpayers 65 and over may exempt up to $8,000 from any source depending on their adjusted gross income level and filing status. All out-of-state pensions are taxed the same as in-state pensions.

New York - Taxpayers must be 59 1/2 and over to qualify for a $20,000 exemption from private pensions, annuities, IRA distributions, Keogh plans, and disability income. All out-of-state pensions, except for federal pensions, are taxed the same as in-state private pensions.

North Carolina - The $2,000 private pension exemption includes income from IRA distributions, annuities, Keogh plans, and Simplified Employee Pension income. All out-of-state pensions are taxed the same as in-state pensions.

North Dakota - All public-sector pensioners must be 50 and over to qualify for the pension exemption. All public sector pension exemptions are reduced by Social Security benefits received. Pensioners must file the long form to qualify for all public sector pension exemptions. Only highway patrol, city police, and city firefighters qualify to receive the $5,000 exemptions under state/local retirement pension plans. All out-of-state pensions are fully taxed.

Ohio - Tax credits are available for retirement income without age restrictions as follows:

Tax
Retirement Income Credit

$500 or less

none

Over $500 but not more than $1,500

$25

Over $1,500 but not more than $3,000

$50

Over $3,000 but not more than $5,000

$80

Over $5,000 but not more than $8,000

$130

Over $8,000

$200


To qualify for the above retirement income credit, a taxpayer must have received retirement benefits, annuities, or distributions from a pension, retirement, or profit-sharing plan. In addition, a taxpayer must have received this income because of retirement reasons, and the income must be included in Ohio adjusted gross income.

A $50 senior citizen credit is available to taxpayers 65 and over; only one $50 credit is available for each return, even for married taxpayers filing jointly. All out-of-state pensions are taxed the same as in-state pensions.

Oklahoma - Starting in tax year 1997, private pensions will gradually be exempted up to $5,500 by phasing the exemption in with $1,100 increments over five years as follows: $1,100 exemption in 1997; $2,200 exemption in 1998; $3,300 exemption in 1999; $4,400 exemption in 2000; and a $5,500 exemption in 2001. Oklahoma law is specifically tied to the Oklahoma retirement systems. Therefore, all out-of-state pensions are fully taxed.

Oregon - Taxpayers 60 and over whose household income is less than $45,000 (married, filing jointly) or $22,500 (other filing statuses) and who have not received more than $7,500 ($15,000 if married, filing jointly) in Social Security and/or Tier 1 Railroad Retirement benefits are eligible for the retirement income tax credit.

This credit can be as much as nine percent of retirement income depending on the level of total income, Social Security benefits, and Tier 1 Railroad Retirement benefits. The credit can be applied to the following income: public pensions, employee pensions, individual retirement plans, deferred compensation plans, and employee annuity plans. The minimum eligibility age will gradually increase each year until age 62 for tax year 1999.

Oregon also offers an elderly tax credit equal to 40 percent of the federal elderly tax credit; however, taxpayers can apply for either this credit or the retirement income tax credit, but not both. All out-of-state pensions are taxed the same as in-state pensions.

Pennsylvania - Taxpayers must be 59 1/2 or over to exempt retirement income. Exempt retirement income includes private pensions, public pensions, annuities, Keogh plans, Simplified Employee Pension income, deferred compensation plans, and IRA distributions. All out-of state pensions are fully exempt.

Rhode Island - All out-of-state pensions are fully taxed.

South Carolina - Effective tax year 1993, pension exemptions increased from $3,000 to $10,000 per retiree for pensioners 65 or over. Exempt income involves plans defined in IRC sections 401, 403, 408, and 457, public pensions plans, IRA distributions, Keogh plans, and military retirement (for persons with 20 or more years of active military duty).

Pensioners under the age of 65 who are just starting to receive retirement income in tax year 1993 or beyond can elect to take either the pre-1993 deduction of $3,000 for the rest of their lives or defer any deduction until the age of 65 (66 for people born between 1943 and 1959; 67 for people born after 1959).

If pensioners defer the deduction to age 65, they are then allowed a $10,000 annual deduction for the rest of their lives. Only one retirement benefit exemption is allowed per pensioner. All out-of-state pensions are taxed the same as in-state pensions.

Utah - Pensioners under the age of 65 may exempt up to $4,800 on pensions, annuities, and Social Security benefits (taxable on federal form). Pensioners age 65 and over may exempt up to $7,500 on all income sources. Since 1988, exclusions have been subject to a $1 reduction for every $2 of AGI in excess of $25,000 (single filers), $32,000 (married, filing jointly), and $16,000 (married, filing separately). All out-of-state pensions are taxed the same as in-state pensions.

Vermont - Taxpayers age 65 and over are eligible for an elderly tax credit equal to 25 percent of the federal elderly tax credit. All out-of-state pensions are taxed the same as in-state pensions.

Virginia - Taxpayers 62 to 64 years of age receive a $6,000 exemption from any income source, while those 65 or over receive a $12,000 exemption from any income source. Married, joint filers qualify for twice the exemption amount even if one spouse earns less than the exemption amount of $6,000 or $12,000. All out-of-state pensions are taxed the same as in-state pensions.

West Virginia - Pensioners receive up to a $2,000 pension exclusion (except for private pensioners and some small municipalities that do not participate in West Virginia's retirement system). Some public safety officials, i.e., any state or local police or firefighters, receive a full pension exemption.

Taxpayers age 65 and over or permanently disabled qualify for up to a $8,000 exemption from any income source. However, the $2,000 pension exemption, the full pension exemption for public safety officials, and interest or dividends on U.S. obligations that are already tax-deductible count toward the $8,000 ceiling. All out-of-state pensions are fully taxed.

Wisconsin - Only military, federal, and certain state/municipal pensioners who retired prior to January 1, 1964, or became a member of the retirement system as of December 31, 1963, and then retired at a later date, qualify for a tax exemption on their pension income. However, for state and local government retirees, only certain Milwaukee city, Milwaukee county, and the Wisconsin teachers' retirement systems qualify for exemptions subject to the aforementioned conditions. In addition to the pension exemption, a $25 tax credit is offered to taxpayers 65 and over. All out-of-state pensions are fully taxed.


Written by David Baer
Public Policy Institute
June 1997
1997, American Association of Retired Persons.
AARP, 601 E Street, NW, Washington, DC 20049