Many states exempt retirement income, although the specifics vary widely. Eight states have no personal income tax, but among those that do, about three-quarters fully exempt Social Security benefits from taxation, and most others have partial exemptions for lower-income retirees, according to research by the Institute on Taxation and Economic Policy, a nonpartisan nonprofit group. Many states also have partial or full exemptions for pension income, and extra personal exemptions or reductions.
“It’s very common for some part of pension income to be exempted at the state level,” said Aidan Davis, the group’s acting state policy director. “And we’re seeing a major trend this year with more states cutting taxes for retirees,” she added. Read more