What Pensions Are Not Taxable? The 2026 Federal List, Plus the Partly Tax-Free Ones

What pensions are not taxable comes down to a short federal list: payments tied to disability or injury, qualified Roth payouts, and the after-tax slice of any pension.

Pensions that are not taxable federally include VA disability compensation and VA pension, military disability pay that meets an IRS test (such as a combat-related injury), combat-related special compensation, workers’ compensation-type disability pensions, and qualified distributions from a Roth 401(k), 403(b) or Roth TSP. Pensions based on age or years of service are generally taxable.

By Craig Wear, CFP® | Last reviewed: October 18, 2026

What pensions are not taxable?

Federal law excludes pensions and pension-like payments that compensate for injury, sickness or service-connected disability, plus qualified Roth payouts and any return of your own after-tax money. A pension earned simply by reaching retirement age or completing years of service is generally taxable as ordinary income (IRS Topic No. 410). The federal list of fully or partly tax-free pensions is:

1. VA disability compensation and VA pension, plus every other benefit the VA administers (IRS Publication 525).
2. Military disability retirement pay that meets one of four IRS tests, such as a combat-related injury.
3. Combat-related special compensation (CRSC).
4. Disability payments for injuries from terrorist attacks or military action.
5. Workers’ compensation and the workers’ compensation part of a service-connected disability pension.
6. Qualified Roth distributions from a Roth 401(k), Roth 403(b), Roth governmental 457(b) or Roth TSP.
7. The after-tax basis portion of any pension, such as the employee contributions inside a CSRS or FERS annuity.
8. Narrow carve-outs: up to $3,000 of retired public safety officers’ insurance premiums, a retired minister’s designated housing allowance, and Survivor Benefit Plan costs.

Which military and VA payments are tax-free?

Everything the VA pays is tax-free, while military retired pay is tax-free only to the extent it is tied to a service-connected disability. The IRS excludes “any veterans’ benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs” (IRS Publication 525).

Military disability retirement pay from the armed forces, NOAA, the Public Health Service or the Foreign Service is excluded if any one of four conditions applies: entitlement to a disability payment before September 25, 1975; membership (or a binding written commitment to join) on September 24, 1975; a combat-related injury; or entitlement to VA disability compensation upon applying. Under the fourth test, the exclusion equals the amount the VA would pay.

A combat-related injury results directly from armed conflict, occurs during extra-hazardous service or under conditions simulating war (including training), or is caused by an instrumentality of war. Combat-related special compensation is also excludable, though other retired pay may remain taxable (IRS Publication 525).

Concurrent retirement and disability pay (CRDP) works differently. For a VA rating of 50% or more, 10 U.S.C. 1414 lets a retiree receive both retired pay and VA compensation without the usual offset, so the restored retired pay keeps its normal tax treatment as taxable retired pay. Below that rating, waiving retired pay for VA compensation shifts that slice to tax-free income. Interaction with a federal civilian annuity is covered in our guide to combining FERS and military retirement.

A retroactive VA rating can unlock refunds: retired pay for the retroactive period is excluded up to the VA amount, claimed on Form 1040-X with the VA letter, and the refund window gets one extra year from the determination date, reaching back no more than 5 years (IRS Publication 525).

Are disability pensions taxable?

A disability pension is taxable when an employer-paid plan funds it, and tax-free when it is workers’ compensation or replaces it. If you retire on disability under a plan your employer paid for, the payments are reported as wages on Form 1040 line 1h until minimum retirement age, then as a pension on lines 5a and 5b (IRS Publication 525).

Workers’ compensation for an occupational sickness or injury is “fully exempt from tax” if paid under a workers’ compensation act or a statute in the nature of one, and survivors keep the exemption. Many police and firefighter plans pay benefits under statutes limited to service-connected disabilities; the part that is workers’ compensation is exempt, and the part based on years of service is taxable (IRS Publication 525).

The exemption never covers benefits based on age, length of service or prior contributions, even after a job-injury retirement. Disability payments for terrorist attacks or military action follow the same limit: amounts that would have been paid in retirement anyway are taxable. Federal workers can see how this plays out in FERS disability retirement.

When is a Roth pension or Roth TSP payout tax-free?

A payout from a designated Roth account is entirely tax-free when it is a qualified distribution. That requires a 5-tax-year period of participation, plus reaching age 59½, disability or death (IRS Publication 575). The 5-year clock starts with the first year a Roth contribution was made to that plan: a first contribution for 2025 means 2030 is the first year a qualified distribution can occur.

The same rule covers the Roth TSP. The IRS states that “qualified distributions from a Roth TSP aren’t included in your income” (IRS Publication 721). The full rules, including nonqualified payouts, are in Roth 401(k) withdrawal rules.

A traditional defined-benefit pension cannot be converted to Roth once it pays out, so the Roth lever sits with the 401(k), 403(b), TSP and IRA balances beside it. Retirees expecting a large, fully taxable pension often weigh partial Roth conversions in the years before the pension starts, a window explained in Roth conversions before your pension starts.

Which pensions are only partly taxable?

A pension is partly taxable whenever the retiree put after-tax money into it or a specific exclusion applies to part of each payment. The core mechanism is basis recovery: the after-tax contributions come back tax-free, spread over the payments under the Simplified Method, which is covered step by step in how a pension is taxed.

Federal civilian annuities are the largest example. “Part of the annuity benefits you receive is a tax-free recovery of your contributions to the CSRS or FERS,” and the rest is taxable (IRS Publication 721). The annuity itself is laid out in FERS retirement explained.

Two smaller exclusions are often missed. Retired law enforcement officers, firefighters, chaplains and rescue or ambulance crew members, retired for disability or at normal retirement age, can exclude up to $3,000 of governmental plan distributions used for health or long-term care premiums for themselves, a spouse or dependents (IRS Publication 575). Since December 29, 2022, the premiums need not be paid directly from the plan.

Retired ministers can exclude “the part of your pension that was designated as a rental allowance” (IRS Publication 517). A surviving spouse generally cannot exclude it unless the allowance is for ministerial services that spouse performed.

How are railroad retirement, Social Security and foreign pensions taxed?

Railroad retirement is split into a Social Security-like part and a pension-like part, and Social Security itself is not a pension at all. The tier 1 Social Security equivalent benefit is taxed like Social Security, while the non-Social Security equivalent benefit, tier 2 and vested dual benefits are treated as payments from a qualified employee plan; vested dual benefits and supplemental annuities are noncontributory and fully taxable (IRS Publication 575).

Social Security is a social insurance benefit, not an employer pension, and between 0% and 85% of it is taxable. Benefits start to become taxable when half the benefit plus other income passes $25,000 single or $32,000 joint, with up to 85% taxable above $34,000 or $44,000 (IRS Publication 915). The resulting marginal-rate spike is explained in the Social Security tax torpedo.

Foreign pensions depend on the country and any tax treaty (IRS Publications 901 and 519).

Which states do not tax pension income?

State pension tax is set by each state, and several either have no broad income tax or exempt pensions outright. Illinois, for example, does not tax the federally taxed portion of income from qualified employee plans, IRAs, government retirement and disability plans including military plans, railroad retirement, or Social Security (Illinois Department of Revenue). A full comparison is in states that don’t tax retirement income in 2026.

Two federal statutes override state law. First, 45 U.S.C. 231m provides that no railroad retirement annuity is “subject to any tax” under the law of any state, so railroad annuities are state-tax-free everywhere (45 U.S.C. 231m). Second, 4 U.S.C. 114 bars a state from taxing the retirement income of someone who is not a resident or domiciliary of that state (4 U.S.C. 114).

That rule covers qualified plans, 403(b) and 457 plans, IRAs, governmental plans and military retired pay, plus nonqualified deferred compensation paid over life or at least 10 years. A retiree who earned a pension in one state and moved away owes state tax on it only where they now live.

Worked example: how much of a $104,000 retirement income is taxable in 2026?

In this hypothetical household, $26,000 of $104,000 in yearly cash flow is excluded outright, and the exclusion also shrinks the taxable share of Social Security. The couple is married filing jointly, both age 67, in 2026. The husband receives $30,000 of military retired pay based on years of service plus $16,000 of VA disability compensation (an illustrative amount, rating 50% or more so both are paid). The wife receives a $12,000 private pension with no after-tax basis and takes $10,000 of qualified Roth 403(b) distributions. Combined Social Security is $36,000.

Provisional income is $42,000 of taxable pensions plus half of Social Security ($18,000), or $60,000. VA compensation and Roth payouts are left out because Publication 915 counts only taxable income and tax-exempt interest. Taxable Social Security is $19,600 (85% of the $16,000 above $44,000, plus $6,000), so adjusted gross income is $61,600.

Deductions total $47,500: the $32,200 standard deduction, $1,650 per spouse for age 65 or older (Rev. Proc. 2025-32), and the $6,000 per-person senior deduction for 2025 through 2028, which begins to phase out above $150,000 of joint modified AGI. Taxable income is $14,100, all in the 10% bracket, for federal tax of $1,410.

If the same $26,000 were instead taxable pension income, provisional income would hit $86,000, taxable Social Security would reach the 85% cap of $30,600, and taxable income would rise to $51,100, with tax of $5,636 ($2,480 plus 12% of the amount over $24,800). Exempt pension dollars work twice: they stay off the return and keep Social Security below its cap. Related options appear in tax-free retirement income sources.

Frequently asked questions

Methodology: Exclusion rules come from IRS Publications 525, 575, 721, 517 and 915 (2025 editions, the latest available) and IRS Topic No. 410; 2026 brackets and the age-65 additional standard deduction come from Rev. Proc. 2025-32; the senior deduction comes from IRS guidance on the One Big Beautiful Bill Act; state overrides come from the text of 4 U.S.C. 114, 45 U.S.C. 231m and 10 U.S.C. 1414, and the Illinois Department of Revenue. The worked example and $30,000 FAQ are hypothetical and federal only; the VA amount is illustrative, not a published VA rate. Because this is a financial topic, anonymous forum anecdotes and unsourced surveys were excluded.

This article is for educational purposes only and is not individualized investment, tax, or legal advice. Consult a qualified professional about your specific situation.