Nine states don't tax public pensions, and three of those states also exempt some private pensions, states About.com. Mississippi and Pennsylvania don't tax any retirement income, and New Hampshire and Tennessee only tax interest and dividends. Seven other states don't have an individual income tax at all.
The nine states that exempt public pensions, such as federal pensions, from income tax also don't tax Social Security income, explains About.com. These states include Louisiana, Massachusetts, Michigan and New York. Iowa no longer taxes military pensions, as of 2014. The states that don't tax any income include Alaska, Florida, Nevada, South Dakota and Texas. Washington and Wyoming also lack an income tax.
Alabama, Hawaii and Illinois exempt certain qualified private pensions, claims About.com. For pensions that don't qualify for tax exemption, Alabama taxes the whole amount, while Hawaii exempts a portion and taxes the rest, according to the Retirement Living Information Center. Other states, such as Arkansas, Colorado, Louisiana, New Jersey and Wisconsin, also only tax part of a pension. Several states levy a tax on the full amount, including Arizona, Indiana, Kansas, Massachusetts and the District of Columbia. Thirteen states also tax Social Security benefits, though some of them have tax breaks for low-income individuals.
