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- Do You Have to Pay Income Tax to a Nonresidential State?
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- State Income Tax Residence Rules
As of 2010, nine of the 50 U.S. states didn't impose state income tax on ordinary income. Five of the remaining 41 states didn't tax teacher's pensions. Of the other 36 states, five states didn't tax their own teachers' pension income, but might tax a teacher's pension income from another state. Eleven states taxed all income equally, regardless of its source. The remaining 20 states excluded a portion of a teacher's pension income from state income taxes depending on a variety of conditions.
No Income Tax
If you're a teacher on a pension in Alaska, Florida, Nevada, South Dakota, Texas, Washington or Wyoming, you won't pay any state income tax -- but neither will any other resident. These seven states don't have a personal income tax. Similarly, if you live in Tennessee or New Hampshire, you won't pay tax on your teacher's pension. However, if you have dividend or interest income, you might be required to pay tax on that income.
State Pension Exemption
When you retire from teaching a draw your pension while residing in Alabama, Hawaii, Illinois, Mississippi or Pennsylvania, you won't pay income tax on your pension even though the state imposes a personal income tax. The exclusion in these five states applies even if your pension is paid by a different state.
Same State Exemption
To avoid paying income tax on your teacher's pension in Kansas, Louisiana, Massachusetts, Michigan and New York, you must have earned in the state. If you live in one of these states and your teacher's pension is paid by a different state, you might be required to pay income tax on some or all of your pension. However, if you live in Massachusetts and earn a Michigan teacher's pension, or you live in Michigan and earn a Massachusetts teacher's pension, you don't have to pay state tax on that income, because those states have reciprocal agreements.
You can't avoid paying state income tax on your teacher's pension in California, Connecticut, Idaho, Indiana, Minnesota, Nebraska, New Mexico, North Dakota, Rhode Island, Vermont or Virginia. These states treat income from a teacher's pension the same as income from any other source and impose a state income tax.
The remaining 20 states exempt a portion of a retired teacher's pension income from state income taxes. Exemptions are different in each state and might depend on your age, when you earned the pension, whether you participate in Social Security and the amount of your Social Security income, your total income or your filing status. Exclusions ranged from $2,000 in West Virginia to $41,110 in Kentucky in 2010.
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