State Taxes on FERS Pension: Complete State-by-State Guide
States With No Income Tax (Full FERS Exemption)
Nine states have no state income tax at all, meaning your FERS pension is completely tax-free regardless of amount:
- Alaska: No state income tax, sales tax varies by locality
- Florida: No state income tax, popular retirement destination
- Nevada: No state income tax, lower cost of living than California
- New Hampshire: No tax on wages as of 2026 (previously taxed interest/dividends)
- South Dakota: No state income tax, low cost of living
- Tennessee: No state income tax, eliminated Hall Tax in 2021
- Texas: No state income tax, but higher property taxes
- Washington: No state income tax, capital gains tax for high earners
- Wyoming: No state income tax, lowest overall tax burden
Key Insight: Moving from a high-tax state like California to Florida or Texas can save you $2,000-5,000+ annually in state taxes on a $40,000-60,000 FERS pension.
States That Fully Exempt Government Pensions
These states have income tax but fully exempt government pensions including FERS:
| State | Exemption Details | Other Retirement Benefits |
|---|---|---|
| Alabama | All government pensions fully exempt | Low property taxes, Social Security exempt |
| Illinois | All retirement income exempt (including FERS, 401k, IRA) | But high property taxes and sales tax |
| Mississippi | Government pensions fully exempt | Low cost of living, Social Security exempt |
| Pennsylvania | Retirement plans fully exempt (age 59.5+) | Social Security exempt, but high local taxes |
States With Partial FERS Pension Exemptions
Many states offer partial exemptions based on age, income level, or pension amount:
| State | Exemption Amount | Age/Income Requirements |
|---|---|---|
| Arizona | Up to $2,500 exemption | Government pensions only |
| Georgia | Up to $65,000 exclusion | Age 62+ (or any age if disabled) |
| Indiana | $2,000 deduction | Government pensions |
| Louisiana | First $6,000 exempt | All retirees |
| Maine | 100% exemption up to income limits | Phase-out at higher incomes |
| Maryland | Up to $25,900 (single) / $32,400 (joint) | Age 65+ |
| Michigan | Varies by birth year | Born before 1946: full; 1946-1952: partial; after 1952: limited |
| New York | Up to $20,000 exemption | Age 55+ |
| Ohio | Pension income credit up to $200/year | All retirees |
| Virginia | Up to $12,000 exemption | Age 55+ |
States That Fully Tax FERS Pensions
The following states tax FERS pensions as ordinary income with no special exemptions for government pensions:
- California: Full taxation, but CSRS pre-1987 service may be exempt
- Colorado: Has senior subtraction ($24,000 for ages 55-64, $20,000 for 65+)
- Connecticut: Full taxation, but has pension credit for low/moderate incomes
- Hawaii: Full taxation, high overall tax burden
- Iowa: Phasing out pension taxation by 2026
- Kansas: Full taxation, but exempts some Social Security
- Massachusetts: Full taxation, relatively flat tax rate (~5%)
- Minnesota: Progressive rates, full pension taxation
- Nebraska: Recently reduced pension taxation, partial exemptions available
- New Jersey: Full taxation, but has pension exclusion for lower incomes
- North Carolina: Flat 4.5% rate, full pension taxation
- Oregon: Progressive rates, no pension exemptions
- Rhode Island: Full taxation, but has property tax relief for seniors
- Utah: Full taxation, but has retirement credit
- Vermont: Progressive rates, full pension taxation
- West Virginia: Recently eliminated pension subtraction
- Wisconsin: Full taxation, but has modest retirement income subtraction
Top 10 Most Retirement-Friendly States for FERS Retirees
Based on overall tax burden, cost of living, and quality of life:
| Rank | State | Why It's Great for FERS Retirees |
|---|---|---|
| 1 | Florida | No income tax, warm climate, large federal retiree community |
| 2 | Texas | No income tax, low cost of living, no estate tax |
| 3 | Pennsylvania | Retirement income exempt (59.5+), moderate COL |
| 4 | Illinois | All retirement income exempt, close to DC metro area |
| 5 | Georgia | Up to $65,000 exclusion, low COL, mild winters |
| 6 | South Carolina | Retirement-friendly tax policies, coastal living |
| 7 | Tennessee | No income tax, no estate tax, low COL |
| 8 | Virginia | $12,000 exemption (55+), close to DC, many federal retirees |
| 9 | Arizona | Warm climate, $2,500 pension exemption, active adult communities |
| 10 | North Carolina | Flat 4.5% rate, moderate COL, Research Triangle jobs |