Do You Pay Taxes on Pensions From the State You Retired In or the State You're Living In?

by Fraser Sherman, Demand Media Google
    When you move state to state, your tax picture can change.

    When you move state to state, your tax picture can change.

    In retirement or out of it, if you move across state lines, your taxes can become complicated. If you have pension income from the state you retired in and you then move somewhere else, you might have to pay tax on your pension to both states -- or to neither state. If you pay tax on income from one state while living in another, ask your state of residence for a tax credit to prevent double taxation.

    Residence

    To figure out who gets your taxes, you have to first figure out your legal residence. If you retire in Minnesota but spend five months of the year in California, that doesn't make you a resident of both states. Your state of residence is the one you consider your real home, which you prove by being registered to vote or by maintaining a driver's license there. As a resident of that state, you pay state income tax.

    Moving

    Suppose you retire in Delaware, then move to Ohio and make that your state of residence. The year you move, you may owe tax to both states: If you move on May 28, tax up to that point goes to Delaware; for the rest of the year -- and the following years -- it goes to Ohio. If you get your pension from a third state, you may have to pay tax on that income to that state too.

    Specifics

    Your specific situation will depend on the laws of the states involved. New York, for example, doesn't tax most types of pensions and annuities, so if your pension comes from a New York employer, you're off the hook. If you move from New York to Florida, Florida has no income tax, so you don't pay there either. North Carolina exempts the first $4,000 of government pension income from state income tax and the first $2,000 of private pensions.

    Considerations

    When you're thinking about where you'd like to retire, state income taxes shouldn't be the only consideration. If you intend to buy a house, look at local property taxes, which vary from county to county: If it's an expensive retirement home, property taxes can take a big bite out of your bank account. So can sales taxes: Chicago has a 9.5 percent sales tax, and two Alabama cities have 10 percent. Look at the whole tax picture, not just income tax.

    About the Author

    Fraser Sherman is a former reporter with the "Destin Log" newspaper and now freelances full-time. His work has been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life," and he's the author of three film reference books, including "Screen Enemies of the American Way." He specializes in finance and tech articles.

    Photo Credits

    • Comstock/Comstock/Getty Images