What States Do Not Tax Federal Retirement

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What States Do Not Tax Federal Retirement

Retirement planning is a crucial aspect of financial stability, and for individuals who have served in the federal government, understanding the tax implications of their retirement income is essential. While the federal government does not tax federal retirement benefits, individual states have varying tax laws that determine whether or not they tax this income. If you are a federal retiree, it is important to consider which states do not tax federal retirement. This article will provide an overview of those states and answer some frequently asked questions related to this topic.

States That Do Not Tax Federal Retirement

Currently, there are 13 states that do not tax federal retirement income. These states are:

1. Alabama
2. Hawaii
3. Illinois
4. Kansas
5. Louisiana
6. Massachusetts
7. Michigan
8. Mississippi
9. New York
10. Pennsylvania
11. Utah
12. Wisconsin
13. Arkansas (effective from 2022)

These states offer a favorable tax environment for federal retirees, as their retirement income remains untaxed at the state level.

FAQs about States That Do Not Tax Federal Retirement

1. Do these states exempt all federal retirement income from taxation?
Yes, these states do not tax any portion of federal retirement income, including pensions, annuities, and survivor benefits.

2. If I am a federal retiree living in a state that taxes federal retirement, can I move to one of these states to avoid state taxes?
Yes, if you establish residency in one of these states, you can potentially avoid state taxes on your federal retirement income.

3. Are there any state-specific requirements or criteria to qualify for tax exemption?
No, these states do not impose specific criteria or requirements to receive tax exemption on federal retirement income.

4. What other sources of retirement income are taxed in these states?
While these states do not tax federal retirement income, they may still tax other forms of retirement income, such as Social Security benefits, private pensions, or income from investments.

5. Are the states listed above the only ones that do not tax federal retirement income?
Yes, these are the only states that fully exempt federal retirement income from taxation. However, some states partially exempt federal retirement income or offer specific deductions or credits.

6. Can I claim a state income tax refund if I move from a state that taxes federal retirement to one that does not?
It depends on the state you are moving from. Some states allow you to claim a refund for taxes paid in the year of your move, while others do not.

7. How do I establish residency in one of these states?
Establishing residency typically involves living in the state for a certain period, obtaining a driver’s license or state identification, registering to vote, and changing your mailing address.

8. Can I still be subject to local taxes in these states?
While these states do not tax federal retirement income at the state level, you may still be subject to local taxes, such as property taxes or sales taxes, depending on the specific locality.

Understanding the tax implications of federal retirement income is crucial for financial planning during retirement. By considering states that do not tax federal retirement, federal retirees can potentially reduce their tax burden and improve their financial well-being. It is advisable to consult with a tax professional or financial advisor for personalized guidance based on your specific circumstances.
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