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STATE INCOME TAXES ON PENSIONS

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					                              OLR RESEARCH REPORT
   July 16, 2008                                                            2008-R-0413


                               STATE INCOME TAXES ON PENSIONS


                                 By: Judith Lohman, Chief Analyst


       You asked for a summary of income tax exemptions for pension
    income in Connecticut and the other states with personal income taxes.

    SUMMARY

       Connecticut’s income tax excludes (1) 75% or 100% of federally
    taxable Social Security income, depending on the taxpayer’s federal
    adjusted gross income (AGI); (2) 100% of railroad retirement benefits;
    and (3) starting with the 2008 tax year, 50% of federally taxable military
    retirement benefits. Connecticut has no exemptions for other types of
    pension income.

        According to a 2007 survey by the National Conference of State
    Legislatures (NCSL), of the 41 states with personal income taxes, all but
    four (Minnesota, Nebraska, Rhode Island, and Vermont) have at least one
    state income tax exemption for some pension and retirement income. The
    most common exemptions are for Social Security and military pensions.
    Many states exempt federal, state, and local government pensions (often
    with limitations) and 23 states exempt some private pension income.
    Alabama, Hawaii, Illinois, Mississippi, and Pennsylvania exempt virtually
    all pension income from their state income taxes.




M ary M . Janicki, Director                                                               Room 5300
Phone (860) 240-8400                                                      Legislative Office Building
FAX (860) 240-8881                     Connecticut General Assembly        Hartford, CT 06106-1591
http://www.cga.ct.gov/olr                Office of Legislative Research               Olr@cga.ct.gov
CONNECTICUT TAX ON PENSION INCOME

   Except for Social Security, railroad retirement, and military retirement
benefits, Connecticut’s state income tax treats income from public and
private pensions the same as any other income. The state has no other
special exemptions for pension income.

Social Security and Railroad Retirement

    Most Social Security and all railroad retirement benefits are exempt
from the Connecticut income tax. The exemptions occur in two ways.
First, because Connecticut bases its state tax on each taxpayer’s federal
adjusted gross income (AGI), federal tax exemptions for a portion of
Social Security and railroad retirement income are automatically
incorporated into state tax calculations. Second, Connecticut explicitly
allows additional state exemptions for federally taxable Social Security
and railroad retirement benefits.

    Federal Income Tax Exemption. For federal tax purposes, Social
Security and Tier I Railroad Retirement benefits are treated the same.
The benefits are partly taxable for a recipient whose income exceeds a
specified amount. The income counted for determining the exemption is
all the non-Social Security or railroad retirement income a person
receives (including any tax-exempt interest) plus 50% of his Social
Security or railroad retirement benefits for the year. If that total exceeds
$32,000 for a married couple filing jointly or $25,000 for a single person,
head of household, or married person filing separately, then 50% of the
Social Security or railroad retirement benefits are taxable. If the total
exceeds $44,000 for joint filers or $34,000 for other filers, 85% of Social
Security or railroad retirement benefits are taxable.

    Connecticut Income Tax Deduction. The starting point for
determining the Connecticut income tax is federal AGI and federal AGI
includes any federally taxable Social Security or railroad retirement
benefits. But state law allows a Connecticut taxpayer to deduct the
following before figuring his Connecticut tax: (1) 75% or 100% of his
federally taxable Social Security benefits, depending on income and (2)
100% of any railroad retirement benefits in excess of the Social Security
benefits he deducts.




       July 16, 2008              Page 2 of 10              2008-R-0413
    A Connecticut taxpayer can deduct 100% of his federally taxable
 Social Security benefits if he is (1) single or married filing separately and
 his federal AGI is less than $50,000 and (2) married filing jointly or a
 head of household whose federal AGI is less than $60,000. A filer whose
 federal AGI equals or exceeds the applicable threshold can deduct 75% of
 his federally taxable benefits.

 Military Retirement Benefits

    Starting with the 2008 tax year, Connecticut exempts 50% of federally
 taxable military retirement pay from the state income tax. The
 exemption applies to federal retirement pay to members of the U.S. Army,
 Navy, Air Force, Marines, Coast Guard, and Army and Air National
 Guard.

 PENSION INCOME TAXES IN OTHER STATES

    According to NCSL, of the 41 states that have broad-based personal
 income taxes, 26 exempt 100% of Social Security benefits; 12 exempt
 100% of military retirement benefits; 10 exempt all federal, state, and
 local government pension income; and 27 provide a full or partial
 exemption for private pension income. Pennsylvania is the only state
 that has an unlimited exemption for all public and private pension
 income.

    Table 1 shows how states tax public and private pension and Social
 Security (SS) income, according to NCSL. Information applies to the 2007
 tax year unless noted. Federal law prohibits states from taxing railroad
 retirement (RR) benefits, so the exemptions shown in Column 5 apply
 only to Social Security. Unless otherwise noted, the total income
 exemption for all pensions may not exceed the individual exemption
 amounts shown.

                 TABLE 1: STATE I NCOME TAX EXEMPTI ONS FOR PENSIONS

   State           State/Local    Federal Civil      Military       Social             Private
                                     Service                       Security
Alabama                    100%            100%            100%          100%         100% for
                                                                                       defined
                                                                                  benefit plans
Alaska           No income tax.
Arizona                 $2,500          $2,500            $2,500        100%               None
Arkansas                $6,000          $6,000            $6,000        100%              $6,000
                                                                                 (includes IRA
                                                                                   distributions
                                                                                after a ge 59 ½)


           July 16, 2008                   Page 3 of 10                  2008-R-0413
                                           Table 1: -Continued-

     State            State/Local      Federal Civil         Military             Social              Private
                                          Service                                Security
California                   None              None                None                 100%              None
Colorado                 Age 55-65:       Age 55-65:          Age 55-65:          Age 55-65:          Age 55-65:
                           $20,000           $20,000              $20,000             $20,000           $20,000
                          Age 65+:          Age 65+:            Age 65+:            Age 65+:           Age 65+:
                           $24,000           $24,000              $24,000             $24,000           $24,000
Connecticut                  None              None         50% starting       100% for AGI               None
                                                              in tax year     under $50,000
                                                                    2008     single/$60,000
                                                                               joint; 75% for
                                                                                 higher AGI
Delaware                Under 60:           Under 60:            Under 60:              100%           Under 60:
                            $2,000             $2,000               $2,000                                $2,000
                          Age 60+:           Age 60+:             Age 60+:                              Age 60+:
                           $12,500            $12,500              $12,500                               $12,500
District of               Age 62+:           Age 62+:             Age 62+:             100%                None
Columbia                    $3,000             $3,000               $3,000
Florida             No income tax.
Georgia                   Age 62+:          Age 62+:           Age 62+:                100%          Age 62+:
                    $30,000 (2007)     $30,000 (2007)     $30,000 (2007)                        $30,000 (2007)
                     $35,000 (2008     $35,000 (2008      $35,000 (2008                         $35,000 (2008
                         and after)        and after)         and after)                            and after)
Hawaii                       100%               100%               100%                100%          100% for
                                                                                                 contributory
                                                                                                         plans
Idaho                   Age 65+ or         Age 65+ or         Age 65+ or               100%              None
                              62+ if             62+ if             62+ if
                          disabled:          disabled:          disabled:
                            $21,900            $21,900            $21,900
                    single/$32,850     single/$32,850     single/$32,850
                    joint minus SS        joint (minus       joint (minus
                      /RR benefits              SS/RR              SS/RR
                       (exemption             benefits)          benefits)
                         limited to
                     certain public
                      safety officer
                           benefits)
Illinois                      100%               100%                100%              100%             100% for
                                                                                                        qualified
                                                                                                           plans




              July 16, 2008                       Page 4 of 10                          2008-R-0413
                                        Table 1: -Continued-

    State           State/Local        Federal Civil         Military            Social              Private
                                          Service                               Security
Indiana                     None             Age 62+:            Age 62+:             100%                None
                                       $2,000 ($4,000      $2,000 ($4,000
                                          per couple)         per couple)
                                             minus SS            minus SS
                                              benefits            benefits
Iowa                     Age 55+:            Age 55+:            Age 55+:         50% under           Age 55+:
                   $6,000 single/      $6,000 single/      $6,000 single/            certain    $6,000 single/
                    $12,000 joint       $12,000 joint       $12,000 joint       income. Tax      $12,000 joint
                         Age 65+:            Age 65+:            Age 65+:     being entirely          Age 65+:
                          $18,000             $18,000             $18,000        phased out            $18,000
                  single/$24,000      single/$24,000      single/$24,000       from 2007 to    single/$24,000
                              joint               joint               joint        2014 (see               joint
                        (2007/08)           (2007/08)           (2007/08)             notes)         (2007/08)
                          $24,000             $24,000             $24,000                              $24,000
                  single/$32,000      single/$32,000      single/$32,000                       single/$32,000
                      joint (2009)        joint (2009)        joint (2009)                         joint (2009)
Kansas                    Kansas                 100%                100%            100% if              None
                        pensions:                                             federal AGI is
                             100%                                                 $50,000 or
                     Out-of-sta te                                             under (2007);
                        pensions:                                                 $75,000 or
                             None                                               under (2008
                                                                                  and after)
Kentucky                 100% for          100% for            100% for            100% for          100% for
                          benefits          benefits            benefits      income under            benefits
                   earned before      earned before       earned before              $41,110   earned before
                          1/1/98.           1/1/98.             1/1/98.                               1/1/98.
                     Prorated for       Prorated for        Prorated for                         Prorated for
                          benefits          benefits            benefits                              benefits
                     earned later       earned later        earned later                         earned later
                             with               with                with                                 with
                       exemption         exemption           exemption                             exemption
                   cap of $41,110     cap of $41,110      cap of $41,110                       cap of $41,110
Louisiana              Louisiana               100%                100%               100%           Age 65+:
                             state                                                             $6,000 single/
                        pensions:                                                               $12,000 joint
                            100%
                     Out-of-sta te
                        pensions:
                            None
Maine               $6,000 minus       $6,000 minus        $6,000 minus               100%            $6,000 (for
                           SS/RR             SS/RR               SS/RR                               401(a), 403,
                          benefits          benefits            benefits                              and 457(b)
                                                                                                     plans only)




            July 16, 2008                         Page 5 of 10                         2008-R-0413
                                      Table 1: -Continued-

    State           State/Local      Federal Civil       Military        Social             Private
                                        Service                         Security
Maryland                Age 65+:          Age 65+:         Age 65+:           100%         Age 65+:
(2006)                $21,500 per      $21,500 per       $21,500 per                  $21,500 minus
                    person minus     person minus      person minus                           SS/RR
                          SS/RR             SS/RR            SS/RR                          benefits.
                         benefits          benefits         benefits                             Not
                                                                                       applicable to
                                                              $5,000                      IRA, R oth
                                                         exclusion at                   IRA, SEP, or
                                                              age 65                   Keogh plans.
Massachusetts               Mass.            100%               100%         100%              None
                        pensions:
                            100%
                     Out-of-sta te
                         pensions
                        exempt if
                       home state
                   has reciprocal
                   exemption for
                            Mass.
                         pensions
Michigan                    Mich.            100%              100%          100%             $40,920
                        pensions:                                                             single/
                            100%                                                       $81,840 joint
                     Out-of-sta te                                                     minus public
                         pensions                                                         retirement
                        exempt if                                                        benefits for
                       home state                                                     tax year 2006.
                   has reciprocal                                                      Income from
                   exemption for                                                            deferred
                            Mich.                                                       comp plans
                        pensions.                                                       (401(k), 457,
                       Otherwise                                                         403(b)) not
                      treated like                                                            exempt
                           private
                         pensions
Minnesota                   None             None              None        Same as               None
                                                                            federal




            July 16, 2008                      Page 6 of 10                   2008-R-0413
                                       Table 1: -Continued-

    State           State/Local      Federal Civil         Military            Social               Private
                                        Service                               Security
Mississippi                 100%              100%                100%              100%            100% for
                                                                                                    qualified
                                                                                                        plans
Missouri               Greater of         Greater of         Greater of    20% excluded                $4,000
                  $6,000 single/     $6,000 single/     $6,000 single/        for 2007 to           (counted
                    $12,000 joint      $12,000 joint      $12,000 joint       increase to       towards the
                     (reduced by        (reduced by        (reduced by     100% in 2012,        $6,000 cap if
                    amount total       amount total       amount total         subject to        applicable)
                           income             income             income    income limits
                          exceeds            exceeds            exceeds
                   certain limits)    certain limits)    certain limits)
                        or 20% of          or 20% of          or 20% of
                      benefits for       benefits for       benefits for
                  2007 (rising to    2007 (rising to    2007 (rising to
                  100% for 2012)     100% for 2012)     100% for 2012)
                  minus amount       minus amount       minus amount
                    of any Social      of any Social      of any Social
                          Security           Security           Security
                       exclusion.         exclusion.         exclusion.
                   Income limits      Income limits      Income limits
                       apply (see         apply (see         apply (see
                            notes)             notes)             notes)
Montana             Up to $3,600       Up to $3,600       Up to $3,600           Taxable if    Up to $3,600
                    for filer with     for filer with     for filer with           income      for filer with
                       AGI under          AGI under          AGI under      (including SS)       AGI under
                           $30,000            $30,000            $30,000   is greater than            $30,000
                                                                                   $25,000
                                                                                   single/
                                                                              $32,000 joint
Nebraska                    None              None               None             Same as                None
                                                                                   federal
Nevada            No income tax.
New               No income tax.
Hampshire
New Jersey              Age 62+:          Age 62+:             100%           100%          Age 62+:
                         $15,000           $15,000                                           $15,000
                         single/           single/                                           single/
                    $20,000 joint.    $20,000 joint.                                    $20,000 joint.
                   Income limits     Income limits                                     Income limits
                       apply (see       apply (see                                        apply (see
                          notes).           notes).                                           notes).
New Mexico        Pension and SS income taxable; RR income exempt. General income exemption for
                  age 62+: $10,000 single/$16,000 joint. Exemption phases out with increased AGI.
                  Full phase-out at $25,500 single /$51,000 joint.




            July 16, 2008                       Page 7 of 10                          2008-R-0413
                                       Table 1: -Continued-

    State           State/Local       Federal Civil        Military          Social             Private
                                         Service                            Security
New York            NY pensions:               100%               100%            100%          Age 59 ½+:
                             100%;                                                                 $20,000
                     Out-of-sta te
                       treated like
                            private
                          pensions
North              $4,000 single/     $4,000 single/     $4,000 single/          100%     $2,000 single/
Carolina               $8,000 joint      $8,000 joint       $8,000 joint                     $4,000 joint
North Da kota       $5,000 minus       $5,000 minus       $5,000 minus         Same as             None
                    SS (limited to                SS                 SS         federal
                   certain public
                             safety
                     retirements)
Ohio                   Certain tax        Certain tax        Certain tax         100%            See notes
                    credits apply      credits apply      credits apply
                        (see notes)       (see notes)        (see notes)
Oklahoma                   Amoun t           Amoun t           Amoun t           100%          Maximum
                      included in        included in        included in                        $10,000 for
                      federal AGI       federal AGI        federal AGI                       retirees with
                            up to a           up to a            up to a                   income below
                    maximum of         maximum of         maximum of                               $37,500
                       $10,000 per       $10,000 per        $10,000 per                   single/$75,000
                    retiree for all    retiree for all    retiree for all                             joint
                           benefits          benefits           benefits
Oregon               Credit up to       Credit up to       Credit up to          100%        Credit up to
                    9% of taxable     9% of taxable      9% of taxable                      9% of taxable
                           pension           pension            pension                          pension
                           income.           income.            income.                          income.
                   Income limits      Income limits      Income limits                     Income limits
                             apply.            apply.             apply.                           apply.
Pennsylvania                  100%              100%               100%        Same as              100%
                                                                                federal
Rhode Island                None               None               None         Same as               None
                                                                                federal
South                  Under 65:        Under 65:         Under 65:               100%     Under 65:
Carolina                   $3,000           $3,000            $3,000                           $3,000
                         Age 65+:        Age 65+:           Age 65+:                        Age 65+:
                     $10,000 (see     $10,000 (see      $10,000 (see                         $10,000
                           notes)           notes)            notes)                      (see notes)
South Dakota      No income tax.
Tennessee         State income tax applies only to interest and dividends. Taxpayers age 65+ may
                  exclude $16,200 single/$27,000 joint.
Texas             No income tax




            July 16, 2008                        Page 8 of 10                     2008-R-0413
                                        Table 1: -Continued-

    State           State/Local        Federal Civil        Military            Social               Private
                                          Service                              Security
Utah                    Age 65+:            Age 65+:           Age 65+:           Age 65+:           Age 65+:
                          $7,500              $7,500             $7,500              $7,500            $7,500
                  single/$15,000      single/$15,000     single/$15,000     single/$15,000     single/$15,000
                            joint                joint             joint               joint             joint
                       Under 65:           Under 65:          Under 65:          Under 65:          Under 65:
                          $4,800              $4,800             $4,800              $4,800            $4,800
                   single/$9,600       single/$9,600      single/$9,600      single/$9,600      single/$9,600
                            joint                joint             joint               joint             joint
Vermont                    None                None               None             Same as              None
                                                                                    federal
Virginia                Age 62-64:         Age 62-64:         Age 62-64:              100%          Age 62-64:
                            $6,000             $6,000             $6,000                                $6,000
                   (Not a vailable    (Not a vailable    (Not a vailable                       (Not a vailable
                     to those who       to those who       to those who                          to those who
                       turn age 62        turn age 62        turn age 62                           turn age 62
                    after 1/1/04.)     after 1/1/04.)     after 1/1/04.)                        after 1/1/04.)

                        Age 65+:            Age 65+:           Age 65+:                              Age 65+:
                          $12,000             $12,000            $12,000                               $12,000
                       Dollar-for-         Dollar-for-        Dollar-for-                           Dollar-for-
                            dollar             dollar             dollar                                dollar
                    reduction for       reduction for      reduction for                         reduction for
                            future             future             future                                future
                  beneficiaries if    beneficiaries if   beneficiaries if                      beneficiaries if
                     federal AGI,        federal AGI,       federal AGI,                          federal AGI,
                    excluding SS,       excluding SS,      excluding SS,                         excluding SS,
                          exceeds            exceeds            exceeds                               exceeds
                          $50,000             $50,000            $50,000                               $50,000
                  single/$75,000      single/$75,000     single/$75,000                        single/$75,000
                              joint              joint              joint                                 joint
Washington        No income tax
West Virginia            100% for              $2,000      $2,000 plus                 Full               None
                    public safety                        amount based
                        pensions                           on years of
                       All others:                             service
                           $2,000
Wisconsin                    None               None               100%        Up to 50%;                 None
                                                                            100% for 2008
                                                                             tax year and
                                                                                     after
Wyoming           No income tax.
 Source: National Conference of State Legislatures , “State Personal Income Taxes on Pensions and
 Retirement Income: Tax Year 2007.” July, 2007.




            July 16, 2008                        Page 9 of 10                          2008-R-0413
Notes:

      Arkansas: Exemption total excludes SS/RR retirement income.
      Colorado: SS/RR retirement income not taxed by the federal government is excluded from
AGI for state income tax purposes.
      Delaware: Exemption total excludes SS/RR retirement income.
      Georgia: Exemption total excludes SS/RR retirement income plus up to $4,000 of earn ed
income.
      Indiana: Taxpayers over 65 may be entitled to a tax credit ranging from $40 to $100,
depending on federal AGI.
      Iowa: Exemption total excludes SS .
      Kansas: For 2007 tax year, exemption total excludes SS for taxpayers with federal AGI under
$50,000. For 2008 and after, AGI maximum for SS exclusion is $75,000.
      Michigan: Taxpayers age 65+ may subtract interest, dividends, and capital gains from AGI
up a maximum for 2006 of $9,128 single/$18,255 joint. The subtraction must be reduced by the
amount of any pension exclusion claimed.
      Minnesota: The exemption amount may be reduced depending on filing status and receipt of
untaxed SS/RR benefits. Exemption does not apply to those with federal AGIs over $33,700
single/$42,000 joint.
      Missouri: Exemption for Social Security benefits, Social Security disability benefits, and
benefits received from a nonprivate retirement system for individuals age 62+ to be phased in as
follows: for 2007, 20%; 2008, 35%; 2009, 50%; 2010, 65%; 2011, 80%; and 2012 and thereafter, 100%.
Maximum deduction is available for AGI up to $85,000 single/ $100,000 joint. The exemption
decreases dollar for dollar for AGIs exceeding that a mount. If a taxpayer receives both Social
Security and public retirement benefits, th e maximum deduction for the publicly funded
retirement benefits is decreased by $1 for every dollar of SS benefits received if the ben efits are
not included in taxpayer’s Missouri AGI. The maximum deduction for the publicly funded
retirement benefits is limited to the maximum SS benefits available for the tax year less any SS
benefits not taxable to Missouri.
      New Jersey: Taxpayers over age 62 are entitled to an additional income exclusion to allow
them to reach the amount of th e pension exemption. The sum of the pension exemption and the
additional exemption may exceed the pension exemption if the recipient is ineligible for SS
retirement benefits. Exclusion eliminated for AGI over $50,000 single/$100,000 joint.
      Ohio: A retirement income tax credit of up to $200 is allowed, depending on income. A
senior citizen tax credit of $25 per tax return is allowed to filers age 65+. A one-time tax credit is
available for lump -sum distributions to people over 65. The credit is $50 multiplied by remaining
life expectancy.
      Oklahoma: Exemption effective for 2005 tax year and after.
      Oregon: Tax credit of up to 9% of taxable pension income is available to recipients of pension
income, including most private pension income, wh ose household income was less than $22,500
for single and $45,000 for joint filers and who received less than $7,500/$15,000 in SS or RR
benefits. The credit is the lesser of tax liability or 9% of taxable pension income.
      South Carolina: Each taxpayer over age 65 is entitled to an income exemption of up to
$15,000 ($30,000, married filing jointly) minus the retirement income exemption claimed.
      West Virginia: Each taxpayer over 65 can claim an $8,000 exemption, from which th e pension
exclusions noted in the table must be deducted.

JL:ts



          July 16, 2008                      Page 10 of 10                      2008-R-0413

				
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