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

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

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

Generally, retirees pay taxes to the state they're living in regardless of where they earned their pension. 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 registering 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 public pensions and exempts private pensions up to $20,000 per year. Florida has no state income tax, which is part of the reason retirees flock there. Texas, Nevada and Washington also forgo charging residents income tax. Kansas, however, is much less accommodating to retirees. The state fully taxes pension income, no matter how great or small your pension may be.

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 10.25 percent sales tax, and parts of Alabama charge rates up to 11 percent. Look at the whole tax picture rather than just income tax.

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About the Author

A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.