Does Pennsylvania Tax Social Security and Retirement Income?

Social Security is not taxed

Pennsylvania taxes only eight named classes of income, and Social Security is not one of them. The PA-40 instructions list Social Security and Railroad Retirement benefits among the receipts that are not reported, so the federally taxable portion of a benefit has no Pennsylvania counterpart at any income level. (Pennsylvania Department of Revenue, 2025 PA-40 instructions booklet)

Benefits are also left out of the eligibility income used for the state’s Tax Forgiveness credit. The Schedule SP instructions list Social Security and Railroad Retirement benefits among the receipts not to include, which matters for retirees whose only Pennsylvania-taxable income is a modest amount of interest and dividends. (Pennsylvania Department of Revenue, 2025 PA-40 Schedule SP, Special Tax Forgiveness, with instructions)

The federal government is a separate matter. Up to 85% of a benefit can be taxed on a federal return once other income passes fixed thresholds, wherever you live. Our taxable Social Security calculator shows how much of yours is counted.

Pensions paid after retirement are not taxed

Payments from an eligible employer-sponsored retirement plan are not taxable once the recipient has qualified for retirement under the plan’s age or years-of-service rules and has retired. That covers private pensions, profit-sharing and thrift plans and 401(k) plans alike. The test is the plan’s own retirement terms, not a fixed age set by the state. (Pennsylvania Department of Revenue, 2025 PA-40 instructions booklet)

Government pensions get the same result. Distributions from the State Employees’ Retirement System, the Pennsylvania School Employees’ Retirement System, the Pennsylvania Municipal Employees’ Retirement System and the federal civil service retirement plan are not taxable regardless of the distribution code on the Form 1099-R. Military retired and retainer pay is also exempt. (Pennsylvania Department of Revenue, 2025 PA-40 instructions booklet)

What remains taxable is money taken before the plan’s retirement conditions are met, and payments that are not retirement benefits at all. An early-retirement incentive paid to induce someone to leave is taxed as compensation, and the instructions note it stays taxable to Pennsylvania even if the recipient moves away. Distributions from a nonqualified deferred compensation plan that trace to elective deferrals are taxable whenever they are paid. (Pennsylvania Department of Revenue, 2025 PA-40 instructions booklet)

IRA withdrawals are tax-free from age 59½; early withdrawals are taxed above contributions

IRA distributions, including lump sums, are not taxable if received on or after age 59½, or if paid to an estate or beneficiary because of the owner’s death. Required minimum distributions therefore create no Pennsylvania tax, however large they are. (Pennsylvania Department of Revenue, 2025 PA-40 instructions booklet)

Before 59½ the picture reverses. A distribution is taxable to the extent it exceeds the owner’s previous contributions, because those contributions were already taxed. Pennsylvania has no equivalent of the federal exceptions for early withdrawals: the instructions say payments received after retiring but before 59½ are taxable even when they are substantially equal periodic payments that escape the federal penalty. (Pennsylvania Department of Revenue, 2025 PA-40 instructions booklet)

The other half of the bargain is on the way in. Pennsylvania does not allow a deduction for IRA contributions, and an employee’s own contributions to a 401(k) or similar plan are taxable compensation even though they are excluded from federal wages. A Pennsylvania worker pays 3.07% on the contribution and nothing on the retirement-age withdrawal. (Pennsylvania Department of Revenue, 2025 PA-40 instructions booklet)

A Roth conversion is not taxed, provided the whole amount moves. The instructions treat a conversion as nontaxable when it is a direct trustee-to-trustee transfer or when the entire distribution, including any federal tax withheld, is paid into the Roth IRA within 60 days. If federal tax is withheld and not replaced from other funds, the rollover is no longer complete for Pennsylvania purposes. (Pennsylvania Department of Revenue, 2025 PA-40 instructions booklet)

To size a conversion against federal brackets and Medicare surcharges, see the Roth conversion calculator; for required withdrawals, the RMD calculator.

Interest, dividends and capital gains carry the tax

For most Pennsylvania retirees the income tax is a tax on the taxable brokerage account. Interest, dividends, capital gain distributions from funds and net gains on the sale of property are each taxed at 3.07%, with no lower rate for long-term gains or qualified dividends. Interest on direct obligations of the U.S. government and of Pennsylvania and its municipalities is exempt. (Pennsylvania Department of Revenue, 2025 PA-40 instructions booklet)

Each class stands alone. A loss in one class cannot offset income in another, and losses cannot be carried forward or back, so a realized capital loss that exceeds the year’s gains gives no Pennsylvania benefit. Spouses also compute each class separately, even on a joint return, and one spouse’s loss cannot reduce the other’s gain. (Pennsylvania Department of Revenue, 2025 PA-40 instructions booklet)

Withdrawals from a commercial annuity bought outside an employer plan are not retirement distributions for this purpose. The instructions tax the earnings as interest income, generally following the amount taxable for federal purposes. (Pennsylvania Department of Revenue, 2025 PA-40 instructions booklet)

The rate is a flat 3.07% for every filing status. It applies to residents and nonresidents alike and has been unchanged for many years. The 2025 PA-40 instructions, the latest available on the review date, confirm 3.07%, and no change for 2026 had been enacted. (Pennsylvania Department of Revenue, Personal Income Tax)

There is no standard deduction, no personal exemption and no extra amount for age 65. Tax applies from the first dollar of taxable income. The offset for low-income filers is the Tax Forgiveness credit, which works through a separate schedule. (Pennsylvania Department of Revenue, 2025 PA-40 instructions booklet)

Retirement income exclusion: there is no cap and no income limit. Pensions, 401(k) distributions after retirement, IRA withdrawals from 59½ and Social Security are simply not taxable classes of income. (Pennsylvania Department of Revenue, 2025 PA-40 instructions booklet)

Tax Forgiveness (Schedule SP): the whole tax is forgiven when eligibility income is $6,500 or less for a single claimant or $13,000 or less for a married couple, with the credit falling by 10 points for each further $250 until it ends above $8,750 and $15,250. Eligibility income leaves out Social Security, military pensions, civil service annuities and retirement benefits paid after becoming eligible to retire and retiring, so a retired couple with a $90,000 pension and $12,000 of dividends owes no Pennsylvania tax. (Pennsylvania Department of Revenue, 2025 PA-40 Schedule SP, Special Tax Forgiveness, with instructions)

Property Tax/Rent Rebate: a cash rebate of up to $1,000 for homeowners and renters aged 65 or older (and widows and widowers from 50) with household income of $48,110 or less. (Pennsylvania Department of Revenue, Property Tax/Rent Rebate Program)

The same three households appear on every state page, so the figures can be compared across states. Each is a full-year resident taking the standard deduction, with no dependents. The figures are state income tax only: any county, city or school district income tax is described on this page but not added in. Pension income is from a private employer, and IRA figures are taxable withdrawals from traditional accounts. The state tax is our calculation from Pennsylvania's published 2026 rules; it is an illustration, not a return.

These households also owe federal income tax, which does not change with the state. The tax bracket calculator and the guide to taxes in retirement cover that side.

Property tax is levied by counties, municipalities and school districts, with school districts taking the largest share, and bills vary widely across the state. The Tax Foundation’s 2026 comparison, using 2024 Census data, puts Pennsylvania’s effective rate on owner-occupied homes at 1.26% of value, the 12th highest in the country. On a $400,000 home that is about $5,000 a year. (Tax Foundation, Property Taxes by State and County, 2026 (comparative figure))

The main statewide relief for older residents is the Property Tax/Rent Rebate. For 2025 claims the income limit is $48,110, and the limit now rises each year with inflation. The filing deadline for 2025 rebates was extended to December 31, 2026. Because the income ceiling is low, the program reaches few households with substantial pension or portfolio income. (Pennsylvania Department of Revenue, Property Tax/Rent Rebate Program)

The state sales tax is 6%. By law a 1% local tax is added in Allegheny County and a 2% local tax in Philadelphia, for 7% and 8% in those places. The exemptions are broad: food that is not ready to eat, most clothing, pharmaceutical drugs, and residential heating fuels such as oil, gas, electricity and firewood are not taxed. (Pennsylvania Department of Revenue, Sales, Use and Hotel Occupancy Tax)

Because only two jurisdictions add a local tax, the statewide average is close to the state rate. The Tax Foundation puts the population-weighted combined average at 6.34% as of January 2026, one of the lower figures among states with a sales tax. (Tax Foundation, State and Local Sales Tax Rates, 2026 (comparative figure))

Pennsylvania has no estate tax, but it has an inheritance tax that reaches most estates because it has no general exemption amount. The rate depends on the heir: 0% for a surviving spouse (and for transfers between a parent and a child aged 21 or younger, in either direction), 4.5% for direct descendants and lineal heirs such as children, grandchildren and parents, 12% for siblings, and 15% for everyone else. Charities and government bodies are exempt. (Pennsylvania Department of Revenue, Pennsylvania Inheritance Tax and Safe Deposit Boxes (REV-584))

Property owned jointly by spouses is exempt. The tax is due at death and becomes delinquent nine months later; paying within three months earns a 5% discount. On a $1.5 million estate left to children, the tax at 4.5% is $67,500 before the discount. (Pennsylvania Department of Revenue, Inheritance Tax)

Retirement accounts are generally included. The instructions to Schedule G of the inheritance tax return say an IRA is fully taxable if the owner was 59½ or older at death, or disabled at any age, so the IRA of a 70-year-old left to a child is taxed at 4.5%. An employer pension or retirement plan is exempt only if the owner had no right during life to possess, enjoy, assign or anticipate the payments, as with a pension that offers nothing beyond a monthly payment and a choice of beneficiary. Annuities are fully taxable. Life insurance proceeds on the life of the person who died are not subject to the tax. (Pennsylvania Department of Revenue, REV-1510 Schedule G, Inter-Vivos Transfers and Miscellaneous Non-Probate Property, with instructions)

The federal estate tax applies in every state. The estate tax calculator estimates both the federal tax and any state tax.

The income tax rate stays at 3.07% for 2026. The treatment of retirement income comes from the long-standing structure of the tax, not from a provision with an expiry date. (Pennsylvania Department of Revenue, Personal Income Tax)

The Property Tax/Rent Rebate was expanded for claims from 2023 onward, raising the maximum standard rebate to $1,000 and tying the income limit to inflation. The limit is $48,110 for 2025 claims and the deadline for those claims was extended to December 31, 2026. (Pennsylvania Department of Revenue, Property Tax/Rent Rebate Program)

Philadelphia has been trimming its School Income Tax, which applies to residents’ dividends and certain other unearned income. The rate was 3.75% for 2024 and 3.74% for 2025, and is 3.735% for 2026. The city’s rate schedule shows 3.73% for 2027, 3.72% for 2028 and 3.70% from 2029. (City of Philadelphia Department of Revenue, tax rate history)

A Pennsylvania resident is someone domiciled in the state, or someone domiciled elsewhere who keeps a permanent place of abode in Pennsylvania and spends more than 183 days of the year there. A person domiciled in Pennsylvania is treated as a nonresident only if they have no permanent abode in the state, keep one elsewhere and spend no more than 30 days of the year in Pennsylvania. (61 Pa. Code 101.1, definition of resident individual)

Part-year residents are taxed as residents for the part of the year they lived in the state. The instructions add that a person in a nursing home or long-term care facility is presumed to keep the residence they had before entering it. (Pennsylvania Department of Revenue, 2025 PA-40 instructions booklet)

Federal law prevents any state from taxing the retirement income of a non-resident, so a former Pennsylvanian owes nothing to the state on a pension or IRA after moving. The reverse case is where the cost lies: someone who worked in Pennsylvania paid 3.07% on their 401(k) contributions, and if they retire to a state that taxes distributions in full, the same money is taxed by a state twice. (4 U.S.C. 114, limitation on state income taxation of certain pension income)

Most Pennsylvania municipalities and school districts levy a local earned income tax, which employers withhold from pay. As the name says, it is a tax on earned income and business net profits, and earned income is defined by reference to compensation under the state income tax. The state’s manual for local tax officers lists Social Security, Railroad Retirement benefits and distributions from eligible retirement plans after retirement age among the items that are never earned income. Interest and dividends are not compensation and are outside the tax as well. (Pennsylvania Department of Community and Economic Development, Act 32 of 2008 Policy and Procedure Manual)

Philadelphia is the exception on the investment side. Its School Income Tax applies to residents’ unearned income, including dividends, some interest, some annuity income and gains on property held for six months or less, at 3.735% for 2026. The city’s regulations exempt old-age, retirement and pension payments made to people who have retired, interest on bank deposits such as savings accounts and bank certificates of deposit, gains on property held for more than six months, and income earned inside an IRA. (City of Philadelphia, School Income Tax regulations)