Is My Retirement Income Taxable to Arizona?

Arizona taxes most retirement income, but some types of retirement benefits qualify for special exclusions or subtractions on your Arizona return.

Public Pension Income

If you receive pension income from certain federal, Arizona state, or Arizona local government retirement systems, you may qualify for a subtraction of up to $2,500. Only the portion included in your federal taxable income qualifies.

Eligible retirement systems include:

• The U.S. Government Service Retirement and Disability Fund
• The U.S. Foreign Service Retirement and Disability System
• Other retirement systems established by federal law
• The Arizona State Retirement System (ASRS)
• The Arizona State Retirement Plan
• The Corrections Officer Retirement Plan
• The Public Safety Personnel Retirement System (PSPRS)
• The Elected Officials' Retirement Plan
• Arizona county, city, or town employee retirement plans
• Arizona Board of Regents and Arizona community college optional retirement programs 

If you're married filing jointly and both spouses receive qualifying pension income, each spouse may claim up to $2,500.

Important: Public pensions from states other than Arizona do not qualify for this subtraction. 

Military Retirement Pay

Arizona allows a 100% subtraction for retired or retainer pay from the uniformed services of the United States. Surviving spouses receiving qualifying military survivor benefits may also exclude 100% of those payments. 

Social Security and Railroad Retirement Benefits

Arizona does not tax:

• Social Security benefits
• Railroad Retirement benefits
• Railroad disability benefits
• Railroad unemployment and sickness benefits reported by the Railroad Retirement Board 

If any of these benefits were taxable on your federal return, you can subtract the taxable amount on your Arizona return. 

Where to Enter the Subtraction in TaxSlayer

1. State Section
2. Subtractions from Income
3. Enter the amount of qualified pension income that qualifies for the Exclusion for U.S. Government, Arizona State or Local Government Pensions

Reference: The Arizona Form 140 instructions discuss the pension exclusion on Line 29a and military retirement exclusion on Line 29b. 

Arizona Forms and Instructions

• Form 140 Individual Income Tax Instructions

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