When it comes to state tax policies, federal legislation exists to protect governmental civil service pensions. Because of this, pensions deriving from state or local governments cannot receive better taxation than Federal civil service pensions. State tax departments are allowed to institute policies that favor their own state pensions over those from another state.
The following states favor their own pensions and provide higher tax savings for retirees with state pensions than they do for pension plans originating from a governmental body out-of-state:
- Arizona
- Idaho
- Kansas
- Louisiana
- New York
- Oklahoma
- District of Columbia
There are 10 different states in which all Federal, State, and local pension plans are exempt from taxation. They are:
- Alabama
- Hawaii
- Illinois
- Kansas
- Louisiana
- Massachusetts
- Michigan
- Mississippi
- New York
- Pennsylvania
