If taxable, are pensions taxable only in the taxpayer's resident state? Which states (if any) tax pensions? What if a taxpayer lives in Florida (non-tax state) 7 months and a state that taxes pensions the other 5 months?
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It depends
Most states that have an individual income tax, tax the pension income of a resident or part-year resident. But, many states exclude some or all of a taxpayer's pension.
Typically, a part-resident would be subject to tax on the pension income received while a resident and not subject to tax on the pension income received while a nonresident. But, it depends on the rules of a particular state.
What state are we talking about? -
State taxability of Pensions
My question related to Florida. I'm in a community that's comprised of many part-time residents with residency elsewhere. Of course, there's no FL state income tax. If both states don't tax pensions, there's no problem. But, what if the issuing state does tax pensions? Would the amount taxable only for the period of residency in that state?Comment
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part-time residents
You need to determine their permanent residence. If they are in Florida for 7 months a year, their home state may consider that a temporary absence and expect a full year's retirement income to be taxable in the home state. Especially if they return to the residence they've owned for 26 years in the home state.
Where do they have their driver's license, car registration, do they own a home in the tax state? Where are they registered to vote? If it's in the tax state not Florida, the tax state will expect a full-year resident return."A man that holds a cat by the tail learns something he can learn no other way." - Mark TwainComment
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I think this is what you seek
Pensions are only taxed in the resident state. So if your client meets the rules for and declares full year Fl residency he escapes taxation. But realize this means that their house up north, will only be eligbile for section 121 for 3 more years.Comment
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Many of my MI snowbirds maintain their MI residency, because MI exempts SSA and up to $25K of pensions or all amounts if they are State of MI or Federal pensions. They also get to claim MI homestead and get a MI refund up to $1200 because of their property tax and didn't have any MI tax withheld.
Many states have exclusions for retirement pensions and SSA. You need to check each state.Comment
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