What States Tax Social Security, TSP Distributions, or Federal Pensions?

Where you live in retirement can impact your retirement income because different states tax the “three legs” of FERS, and CSRS, differently.

For FERS retirees, they should have three sources of income to draw from upon retiring from the Federal Government: TSP, FERS, and Social Security – sometime referred to as the “three legs” of a FERS retirement. Retirees under the CSRS pension might have some Social Security or TSP income, but the majority of their money in retirement comes from CSRS. FERS or CSRS annuities, Social Security benefits, and (traditional) TSP distributions are subject to federal taxation. There’s no getting around that. Even if you move to another country (one where you’re able to receive your federal pension), all three types of retirement income are subject to tax-withholding, although there a few exceptions.

States taxes are different story. Most states do not tax Social Security benefits, but there are 13 that do: Colorado, Connecticut, Kansas, Minnesota, Missouri Montana, Nebraska, New Mexico, North Dakota, Rhode Island, Utah, Vermont, and West Virginia.

Learn more about how your federal retirement income is taxed at no-cost webinar!

There are 12 states that tax neither TSP distributions nor your federal pension: Alaska, Florida, Illinois, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Then there are 2-3 states that do not tax federal pension income, but do tax your TSP distributions: Hawaii and Alabama. (*New York also excludes public pension income, like FERS or CSRS, from income tax but does tax some private retirement plans.)

One last thing to consider when deciding where to live in retirement is property taxes and local/city taxes. Sometimes, these types of taxation will offset any savings you may have had by moving to another state. Below is a chart that lays out all 50 states (plus DC), and depicts which ones tax FERS or CSRS income, which tax traditional TSP and IRA withdrawals, and which tax social security benefits. They will also be ranked not alphabetically, but by which states had the lowest property taxes in 2019 to which had the most expensive property tax rates.

How States Tax Retirement Income

Property Tax Rate *lowest to highest	State	Tax FERS/CSRS Income?	Tax traditional TSP withdraws?	Tax Social Security?
0.28%	Hawaii	NO	YES	NO
0.41%	Alabama	NO	YES	NO
0.51%	Colorado	YES	YES	YES
0.55%	Louisiana	YES	YES	NO
0.56%	Washington, DC	YES	YES	NO
0.57%	South Carolina	YES	YES	NO
0.57%	Delaware	YES	YES	NO
0.58%	West Virginia	YES	YES	YES
0.60%	Nevada	NO	NO	NO
0.61%	Wyoming	NO	NO	NO
0.62%	Arkansas	YES	YES	NO
0.63%	Utah	YES	YES	YES
0.66%	Arizona	YES	YES	NO
0.69%	Idaho	YES	YES	NO
0.71%	Tennessee	NO	NO	NO
0.76%	California	YES	YES	NO
0.80%	New Mexico	YES	YES	YES
0.81%	Mississippi	NO	NO	NO
0.82%	Virginia	YES	YES	NO
0.84%	Montana	YES	YES	YES
0.84%	North Carolina	YES	YES	NO
0.85%	Indiana	YES	YES	NO
0.86%	Kentucky	YES	YES	NO
0.89%	Florida	NO	NO	NO
0.90%	Oklahoma	YES	YES	NO
0.92%	Georgia	YES	YES	NO
0.97%	Missouri	YES	YES	YES
0.97%	Oregon	YES	YES	NO
0.98%	North Dakota	YES	YES	YES
0.98%	Washington	NO	NO	NO
1.09%	Maryland	YES	YES	NO
1.12%	Minnesota	YES	YES	YES
1.19%	Alaska	NO	NO	NO
1.23%	Massachusetts	YES	YES	NO
1.31%	South Dakota	NO	NO	NO
1.36%	Maine	YES	YES	NO
1.41%	Kansas	YES	YES	YES
1.54%	Michigan	YES	YES	NO
1.56%	Ohio	YES	YES	NO
1.57%	Iowa	YES	YES	NO
1.58%	Pennsylvania	NO	NO	NO
1.63%	Rhode Island	YES	YES	YES
1.72%	New York*	NO	YES	NO
1.73%	Nebraska	YES	YES	YES
1.80%	Texas	NO	NO	NO
1.85%	Wisconsin	YES	YES	NO
1.90%	Vermont	YES	YES	YES
2.14%	Connecticut	YES	YES	YES
2.18%	New Hampshire	NO	NO	NO
2.27%	Illinois	NO	NO	NO
2.49%	New Jersey	YES	YES	NO

Source: https://www.rocketmortgage.com/learn/property-taxes-by-state

Until Next Time,

**Written by Benjamin Derge, Financial Planner, ChFEBC℠ The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.