State Tax on Federal Pension 2026: Which States Tax FERS Annuities

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State tax on federal pension 2026 rules vary widely. Some states don't tax federal pension income because they have no broad-based personal income tax, while others specifically exempt qualifying federal civil-service annuities. Most remaining states tax FERS and CSRS annuities either fully or partially, depending on age, income, filing status, and state-specific deductions.

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Whether your FERS annuity is taxed at the state level depends on where you live in retirement, your age, your filing status, and in some states, your total income. According to the Tax Foundation, nine states have no broad-based personal income tax at all. That automatically shields any federal retiree living there from state-level tax on pension income.

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For federal employees approaching retirement, the question of which states tax federal pensions can change a planned retirement budget by thousands of dollars per year. This guide explains how state taxation of FERS, the Federal Employees Retirement System, and CSRS, the Civil Service Retirement System, works in 2026. You'll also see which states offer the strongest exemptions and what to verify before relocating.

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What Counts as a Federal Pension for State Tax Purposes

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A federal pension, for state tax purposes, is the monthly annuity OPM, the U.S. Office of Personnel Management, pays to retired federal civilian employees under FERS or CSRS. State tax codes often treat the FERS basic annuity and the CSRS annuity as pension or retirement income. The FERS supplement should be verified separately under each state's rules because classifications can vary.

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The TSP, or Thrift Savings Plan, is the federal government's tax-advantaged retirement savings program. Withdrawals from the TSP are governed by each state's broader retirement-income rules and may be treated differently from the annuity itself.

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It matters which bucket your income comes from. Some states draw a sharp line between an employer-paid civil-service pension and a participant-directed account like the TSP, granting an exemption to one but not the other. A FERS retiree drawing both will often face a mix of taxable and non-taxable income at the state level, even within a single state.

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States with No Personal Income Tax

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Nine states don't levy a broad-based personal income tax, according to the Tax Foundation's 2026 state tax overview. Federal retirees who establish residency in any of them generally owe no state income tax on FERS annuity payments, TSP withdrawals, or Social Security benefits. Washington applies a separate capital gains tax that can affect certain investment income.

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Those nine states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

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New Hampshire and Washington apply tax to certain investment or capital-gains income. Neither taxes wage or pension income for residents in 2026. For a federal employee comparing post-retirement destinations, these nine states represent the cleanest state-tax outcome on federal annuity income.

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States That Fully Exempt Federal Pension Income

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Beyond the no-income-tax states, a separate group of states levies a personal income tax but specifically exempts federal civil-service pensions from it. These are the states that exempt federal pensions in part or in full. Based on state retirement-income summaries and state tax guidance, several states with income taxes may fully exempt qualifying federal civil-service pension income. They include Alabama, Hawaii, Illinois, Iowa, Mississippi, New York, and Pennsylvania.

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State rules change frequently. Retirees should verify the current rule directly with the state department of revenue before relying on an exemption.

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These exemptions aren't always identical. Iowa's exemption applies broadly to retirement income for residents age 55 and older. New York exempts the full federal annuity but caps the exemption on private retirement income at $20,000 per recipient.

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Pennsylvania doesn't tax any retirement income for residents who have met state retirement age, including FERS and CSRS annuities. Before relying on any single state's exemption, confirm the current statute through that state's department of revenue.

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States That Partially Tax Federal Pensions

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The majority of states fall into a middle category: they tax federal pension income but offer a deduction, exemption amount, or credit that reduces the bill. Examples for 2026 include Georgia, South Carolina, Maryland, and Virginia.

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According to the Georgia Department of Revenue, Georgia allows a retirement income exclusion of up to $65,000 per person age 65 or older. A smaller exclusion is generally available for ages 62 to 64. Georgia has also approved an increase to $70,000 for age 65 and older beginning in 2027, so retirees should confirm the applicable year before planning withdrawals.

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South Carolina permits a retirement income deduction that increases at age 65. The Comptroller of Maryland offers a pension exclusion for residents age 65 and older, with the maximum exclusion amount adjusted annually.

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Partial-exemption states are where careful retirement planning matters most. The size of the deduction, the age threshold, and the interaction with Social Security taxation can push a federal retiree's effective state tax rate up or down by several percentage points. Federal Pension Advisors, a retirement planning firm specializing in federal employee benefits, regularly works with clients to model these state-by-state differences before they finalize a relocation decision.

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Sample Comparison Table: 2026 State Tax Treatment of FERS Annuity Income

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The table below is a sample comparison of federal pension income tax by state in 2026. It's not a full 50-state list. State rules change frequently and contain age, income, and residency conditions that the table can't fully capture. Verify each figure against the relevant state department of revenue before relying on it for planning.

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Sources: Tax Foundation 2026 state tax overview; state retirement-income summaries; individual state departments of revenue.

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How Residency Determines Which State Taxes Your Pension

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Residency, not the location where you earned your federal service, controls state tax on FERS annuity in retirement. Your state tax liability is generally based on your legal residence or domicile when the annuity is paid, not the state where the federal service was earned. Update your withholding and residency documentation when you move, and confirm filing obligations with both the former and new state.

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A federal employee who spends a 30-year career in Washington, D.C., then retires to Florida, pays no state income tax on the resulting FERS annuity.

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Establishing residency is a documented process. Most states require a combination of a permanent address, driver's license, voter registration, vehicle registration, and a stated intent to remain. Maintaining a home in a former state, keeping bank accounts there, or spending more than half the year there can trigger a residency audit.

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Federal Pension Advisors, a retirement planning firm specializing in federal employee benefits, recommends that any retiree planning a tax-motivated move document the residency change carefully and consult a tax professional in both the origin and destination state. Their FERS retirement planning resources can help you map out the timing of a move against your annuity start date.

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How Social Security Interacts with State Pension Taxation

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Most FERS retirees are eligible for Social Security benefits in addition to the FERS annuity. CSRS retirees may or may not be eligible, depending on their earnings history outside CSRS-covered service. State taxation of Social Security is a separate question from state taxation of the pension itself.

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According to the Social Security Administration, the federal government taxes up to 85% of Social Security benefits depending on combined income. Most states don't tax Social Security at all.

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A small group of states tax Social Security benefits to some degree. For 2026, these states generally include Colorado, Connecticut, Minnesota, Montana, New Mexico, Rhode Island, Utah, and Vermont. West Virginia shouldn't be listed as a 2026 Social Security tax state because its phaseout reaches a 100% decreasing modification for tax year 2026.

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For a federal retiree, the combined treatment of FERS annuity, TSP withdrawals, and Social Security determines true after-tax retirement income, not the pension exemption alone. This is the foundation of federal retirement income planning.

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TSP Withdrawals and State Tax

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The TSP, or Thrift Savings Plan, is treated separately from the FERS annuity in most state tax codes. Traditional TSP withdrawals are taxed as ordinary income at the federal level, and most states follow that treatment. A handful of states that fully exempt federal civil-service pensions don't extend the same exemption to TSP withdrawals, because the TSP is structured as a participant-directed account rather than a defined-benefit pension.

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Roth TSP withdrawals follow Roth IRA tax rules in most states. Qualified distributions are federally tax-free and, in most cases, state tax-free as well.

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Before a major TSP withdrawal or rollover, confirm how your specific state classifies the income. The distinction between an annuity payment and a TSP distribution can change the state tax outcome significantly. Reviewing your TSP withdrawals strategy alongside your state of residence will help you avoid a surprise tax bill.

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Planning Your Federal Pension Around State Tax in 2026

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State taxation can change the after-tax value of a FERS or CSRS pension by 4% to 8% per year, depending on the destination state and your income mix. For a retiree with a $60,000 annuity and meaningful TSP withdrawals, that's a difference of several thousand dollars annually. The gap compounds over a 25-year retirement.

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Federal Pension Advisors, a retirement planning firm specializing in federal employee benefits, builds state-by-state tax modeling into every retirement plan so federal employees can see what their net annuity actually looks like in the place they intend to live. You can review their CSRS annuity and FERS planning resources to compare scenarios before you commit to a move.

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The right answer depends on more than the tax code. Cost of living, proximity to family, healthcare access, and FEHB, the Federal Employees Health Benefits Program, network coverage all factor into the real value of a retirement move. State tax is one variable in a larger plan. For federal retirees with substantial pension income, it's one of the most consequential.

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Before making a final decision, review your projected pension, TSP withdrawals, Social Security income, and state residency rules with a qualified tax or retirement professional.

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Frequently Asked Questions

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1. Which states will not tax federal pensions in 2026?

Several states do not tax federal pensions in 2026. Nine states have no broad-based personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Other states may fully exempt qualifying federal civil-service annuities, including Illinois, Iowa, Mississippi, New York, Pennsylvania, and in many cases Alabama and Hawaii. Confirm eligibility with the state tax agency.

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2. Do I pay state tax on my FERS annuity if I move after retirement?

Your state of legal residence at the time the annuity is paid determines your state tax liability, not the state where you earned your federal service. If you retire from a federal job in one state and move to another, the destination state's rules apply. Establish documented residency before relying on a new state's tax treatment.

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3. Are TSP withdrawals taxed the same way as FERS annuity payments?

Not always. Most state tax codes treat the TSP, or Thrift Savings Plan, as a participant-directed account. Some states that fully exempt the FERS pension still tax TSP withdrawals as ordinary retirement income. Check your specific state's treatment of defined-contribution plan distributions before withdrawing from your TSP.

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4. Does Florida tax federal retirement income?

No. Florida doesn't levy a personal income tax, so federal retirees who establish legal residence there pay no state income tax on FERS annuity payments, CSRS annuity payments, TSP withdrawals, or Social Security benefits. According to the Tax Foundation, Florida is one of nine states with no broad-based personal income tax in 2026.

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5. How much can I deduct from my federal pension in Georgia?

According to the Georgia Department of Revenue, residents age 65 and older may exclude up to $65,000 of retirement income per person from state income tax in 2026. A smaller exclusion is available between ages 62 and 64. Georgia has approved an increase to $70,000 for age 65 and older beginning in 2027. The exclusion can apply to FERS and CSRS annuity income, along with other qualifying retirement income.

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6. Can I avoid state tax on my federal pension by changing residency before retirement?

Yes, if the change is genuine and documented. Establishing residency in a no-tax or full-exemption state before your annuity begins generally shields the annuity from your former state's income tax. Maintain proper documentation, change your driver's license and voter registration, and meet the physical-presence rules of the new state.

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Disclaimer

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Federal Pension Advisors is a retirement planning firm specializing in federal employee benefits. This article is for informational purposes and does not constitute tax or legal advice. State tax rules can change frequently. This article references OPM.gov, the Tax Foundation, and selected state tax guidance available as of May 2026, but retirees should verify current rules directly with the relevant state department of revenue and consult a qualified tax professional before making relocation, withholding, or withdrawal decisions.

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