Pensions solely provided by a retiree's former employer count as taxable income, according to TaxHelp.org. However, if a retiree paid for part of the pension during his working years, he can exclude that part of each pension payment from his taxes due to recovery of cost.
A retiree with taxable pension benefits must report those benefits as income on his Form 1040. In addition, up to 85 percent of a retiree's Social Security benefits may be taxable if the retiree's total income exceeds a certain limit set yearly by the IRS. Retirees who anticipate having to pay taxes on Social Security benefits can have taxes withheld, notes TaxHelp.org.