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Home » Retirement Taxes


Retirement Taxes

Retirement taxes in United States normally consist of a portion of the Social Security benefits which the retired taxpayers need to pay in the Adjusted Gross Income (AGI). In most of the states, calculation of the state personal income tax is done with the federal taxable income or federal AGI.

In a number of states, Social Security retirement benefits from state income taxes are excluded. It is done in the District of Columbia as well as in other states like Indiana, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Alabama, Arizona, Arkansas, California, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Mississippi, New Jersey, New York, North Carolina, Michigan, Pennsylvania, South Carolina, Ohio, Oklahoma, Oregon, Virginia and Wisconsin. The other 14 states have income tax social security.

States are not allowed to tax the benefits of the retirees of the U.S. defense system if they are not covered under the pensions of the local and state government retirees. In most of the states, an income tax is imposed but the part of the pension income is exempted. Various types of pension incomes such as federal civil service taxes, private taxes, military taxes or other local and state government taxes are treated differently for various tax purposes.

Although most states are free from federal control for charging various retirement taxes, they have to abide by certain limitations. Some of the states do charge taxes on Social Security Income, only to the extent that it is liable to federal taxation. States like Massachusetts and Kansas do not exclude any type of retirement income from the private-sector. Alabama charges from the income from well defined benefit plans, while in the state of Hawaii; income from contributory plans is excluded.

In states like Connecticut, Nebraska, Rhode Island, California and Vermont, there are no tax credits or exemptions on the retirement incomes and pensions which is calculated in the federal adjusted gross income. Most of the in-state government pensions are liable to taxations in the same way as out-of-state government pensions. Tax relief is also offered by the District of Columbia for the government pensions.

In states like Massachusetts, New Jersey and Pennsylvania, IRA contributions are exempted from deductions from the taxable incomes. In Pennsylvania, IRA earnings of taxpayers age 59 years or older are not taxed as they are treated like the pension incomes.