Taxation of Pensions in Florida

When you retire, the last thing you want to do is send Uncle Sam anymore of your hard-earned money. Moving to a state that offers tax breaks on pensions can help you keep more of your money free for fun, family and living out your retirement dreams. With its warm and sunny climate, miles of oceanfront and generous retiree tax treatment, Florida has long served as a haven for retirees looking to make the most of their retirement savings.

Florida Income Taxes

Florida is one of a handful of U.S. states that does not charge state income taxes. If you live in Florida and receive a pension, the entire amount of your pension is yours to enjoy tax-free. Any other sources of income, including earned income from a job, annuities and Social Security benefits are all free from taxes, too.

Federal Pension Taxes

While your pension and other income may be free from taxes in Florida, you still have to pay federal taxes on many different kinds of retirement and earned income. If you receive a pension that you didn't contribute to financially, the federal government typically considers your pension fully taxable. If you contributed after-tax dollars to help fund your pension, you may only have to pay federal taxes on the portion of the pension you did not fund. Beyond your pension, other sources of income that are not taxed in Florida, including Social Security benefits and earned income, are subject to federal taxes under some circumstances.

Source Taxes on Pensions

If you live in Florida and receive a pension from another state, you may wonder if you have to pay taxes on that income to the state where you earned the pension. Thanks to the federal Pension Source Tax Act of 1996, your pension is yours to enjoy tax-free if you're a Florida resident. This law prohibits the state where you earned the pension from taxing you on these funds if you are no longer a resident.

Considerations

If you retire to Florida, but only live there for part of the year, you must establish domicile in Florida to avoid paying taxes on your pension. While you can maintain residences in more than one state, you can only establish domicile in on location. To establish domicile in the Sunshine State, file a sworn statement with the clerk of the circuit court in the Florida county where you live. Send a copy of this statement to the state where you spend your time when you're not in Florida. To further support your claim of domicile, use your Florida address when filing federal tax returns and other documents, and update your address with clubs and social organizations to reflect your Florida residency. Obtain a Florida driver's license, library card, voter's registration and similar documents to establish your domicile in the state.

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About the Author

Emily Beach works in the commercial construction industry in Maryland. She received her LEED accreditation from the U.S. Green Building Council in 2008 and is in the process of working towards an Architectural Hardware Consultant certification from the Door and Hardware Institute. She received a bachelor's degree in economics and management from Goucher College in Towson, Maryland.

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