How Arizona taxes retirement income
Arizona does not tax Social Security benefits. Pensions and 401(k)/IRA withdrawals are partly taxed (there is an exclusion, then the rest is taxed). Social Security and Railroad Retirement benefits are fully excluded from Arizona gross income (Form 140, subtraction line). Pensions from the State of Arizona, its political subdivisions, or U.S. government service qualify for a subtraction (up to $2,500 under current form instructions). Military retired/retainer pay is 100% exempt beginning tax year 2021. All other retirement income, private-employer pensions, and 401(k)/403(b)/traditional IRA withdrawals, gets no special exclusion and is taxed as ordinary income at Arizona's flat 2.5% rate, the same as federal treatment upon distribution.
Retirement income tax in Arizona, at a glance
| Income type | Taxed by Arizona? |
|---|---|
| Social Security | No |
| Pensions | Partially (exclusion applies) |
| 401(k) / IRA withdrawals | Yes |
| Estate / inheritance tax | None |
| Avg. property tax rate | 0.48% of home value |
Does Arizona tax Social Security benefits?
No. Arizona does not tax Social Security benefits.
Does Arizona tax pensions and 401(k) or IRA withdrawals?
Partly. Social Security and Railroad Retirement benefits are fully excluded from Arizona gross income (Form 140, subtraction line). Pensions from the State of Arizona, its political subdivisions, or U.S. government service qualify for a subtraction (up to $2,500 under current form instructions). Military retired/retainer pay is 100% exempt beginning tax year 2021. All other retirement income, private-employer pensions, and 401(k)/403(b)/traditional IRA withdrawals, gets no special exclusion and is taxed as ordinary income at Arizona's flat 2.5% rate, the same as federal treatment upon distribution.
For the mechanics of required withdrawals in retirement, see what is an RMD.
Sources
- Arizona taxation of retirement income (Social Security, pensions, 401(k)/IRA): Arizona Department of Revenue / Taxation.