Does Pennsylvania Tax Retirement Income?

If you’re planning your golden years and asking, “Does Pennsylvania tax retirement income?”—the good news is that Pennsylvania is one of the most tax-friendly states for retirees. The state does not tax Social Security, pensions, or retirement account withdrawals (as long as you’ve reached retirement age). However, other income like dividends, rental income, and wages are taxable. Let’s dive into all the details, with examples, statistics, and planning tips so you know exactly what to expect in retirement in the Keystone State.

Why Pennsylvania’s Retirement Tax Rules Matter

Pennsylvania has long been a magnet for retirees because of its unique tax rules. While many states tax at least some form of retirement income, Pennsylvania’s broad exemptions make it stand out. Neighboring states like New Jersey and New York impose significant taxes, which has driven many retirees across the border. According to Kiplinger’s 2024 State-by-State Guide to Taxes on Retirees, Pennsylvania consistently ranks among the top 10 most retirement-friendly states in the U.S.

But tax rules can be tricky. That’s why tools like the Retirementize retirement income calculator can be so valuable—they help you see the real after-tax income picture when planning your retirement lifestyle. Whether you’re weighing pensions, IRAs, or Social Security, understanding how much of your money stays in your pocket is key.

Social Security Benefits in Pennsylvania

First the big relief: Pennsylvania does not tax Social Security benefits. This is a huge advantage compared to the federal government, where up to 85% of Social Security can be taxable depending on your income. For retirees relying heavily on Social Security, this is a big cost saver.

Example: Imagine Mary, a 67-year-old retiree in Pennsylvania, receives $24,000 per year in Social Security. At the federal level, about $10,000 of that might be taxable if she has other income. But in Pennsylvania, all $24,000 is exempt. That’s money that stays directly in her pocket.

To learn more about how Social Security works, see our guide What is Social Security?.

Pension Income in Pennsylvania

Pennsylvania is also generous when it comes to pensions. Both public and private pensions are exempt from state income tax as long as you retire at the official retirement age or after fulfilling service requirements. This includes pensions from teachers, government employees, and private corporations.

Example: John worked for the state of Pennsylvania for 30 years and retired at 62. His $40,000 annual pension is not subject to PA state income tax. But if he had taken an early payout at age 55 as a lump sum, part of it could be taxed because it doesn’t meet the retirement criteria.

Want to see how pensions should fit into your plan? Check out how to factor pensions into retirement savings.

Retirement Accounts: 401(k), IRA, and 403(b)

Another major benefit: Distributions from retirement accounts like 401(k)s, IRAs, and 403(b)s are not taxed in Pennsylvania if you’ve reached retirement age according to your plan. Rollovers are also untaxed.

However, if you take early withdrawals before retirement age, those distributions are taxable. So timing matters.

Example: Sarah withdraws $20,000 from her IRA at age 65. Pennsylvania does not tax that money. But if she withdrew it at 58, PA would consider it taxable income in addition to federal penalties.

If you’re curious about withdrawal strategies, try the Retirement Withdrawal Calculator to see how different timing choices affect your income.

Other Income Sources in Retirement

While PA is kind on pensions and Social Security, not everything is exempt. Here’s what you need to know:

• Part-time jobs or consulting: Income is fully taxable.
• Investment income: Interest, dividends, and capital gains are taxable.
• Rental income: If you own rental properties, that income is taxable in PA.

Example: A retiree with $25,000 pension + $15,000 Social Security + $10,000 in dividends would pay no tax on the first two, but would owe PA income tax on the $10,000 dividends.

For those considering rental income, see our article Rental Properties for Retirement Income.

Property and Inheritance Taxes in Pennsylvania

Pennsylvania may be friendly with retirement income, but it makes up for it in other areas:

• Property Taxes: Above the national average, varying by county. Some counties offer senior rebates.
• Inheritance Tax: Ranges from 0% for spouses, 4.5% for children, 12% for siblings, and 15% for others. This can be a significant burden on estates.

Planning Tip: Estate planning is crucial if you want to minimize inheritance taxes. Tools like trusts can help reduce the impact.

Why Pennsylvania Is Considered Tax-Friendly

So, why do retirees love PA?

• No tax on Social Security
• No tax on pensions
• No tax on retirement account withdrawals after retirement age

According to a SmartAsset 2024 survey, Pennsylvania is ranked as the #6 most tax-friendly state for retirees. Compare this to states like California or New York, where retirees face heavy tax burdens, and it’s clear why Pennsylvania stands out.

For broader context, check our guide on United States income taxes ranked by state.

Fun Facts About Pennsylvania Retirement Taxes

Planning Tips for Retiring in Pennsylvania

If you’re eyeing PA as your retirement destination, keep these in mind:

• Use the Retirementize calculator to model different income sources after tax.
• Choose a county carefully—property taxes vary widely.
• Consider estate planning early to minimize inheritance taxes.
• Factor in healthcare, which can be more expensive in some regions.

Conclusion

So, does Pennsylvania tax retirement income? The short answer: No, not on Social Security, pensions, or retirement account withdrawals (if you’re at retirement age). That makes it one of the most retirement-friendly states in the country. But retirees should still plan for property taxes, inheritance taxes, and taxes on investment or wage income. With careful planning—and smart tools like the Retirementize retirement income calculator—you can maximize your after-tax income and enjoy a worry-free retirement in Pennsylvania.

---

---