State Tax Treatment of Civil Service Annuities

Chapter 14: Section 4

State Provisions and Exemptions

The following states have no personal income tax: Alaska, Florida, Nevada, New Hampshire,* South Dakota, Tennessee,* Texas, Washington, and Wyoming. (*Tax is imposed on interest and dividend income.)

The following states exempt the total amount of the taxable portion of civil service annuities: Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Mississippi, New York, and Pennsylvania. Wisconsin does not tax annuities of federal employees who were retired before January 1, 1964, or who were employed by the government and covered by one of its retirement systems as of December 31, 1963, and retired at a later date. North Carolina does not tax federal annuities if an individual had five years of government service as of August 12, 1989. 

Other states have various partial exemptions for retirement income, including federal annuity benefits. Policies vary by amount, income level, age, cutoff dates, source of the income (Social Security and military retirement pay commonly are exempt, for example) and other factors. Consult a professional tax adviser and your state’s department of taxation for details.

No state or other jurisdiction may tax the retirement income of an individual who is not a resident of, or domiciled there. While jurisdictions may no longer impose these “source” taxes—which targeted individuals who had earned retirement benefits while working within their borders but who collected those benefits after moving to another state where the benefits would be taxed at a lower rate or not at all—retirement income remains taxable as applicable by the jurisdiction in which the taxpayer resides.


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