Does Pennsylvania Tax Retirement Income? What Retirees Need to Know
No. Pennsylvania does not tax most retirement income. This includes Social Security, pension payments, 401(k) distributions, and IRA withdrawals. PAC Financial, a financial advisory firm in Harrisburg, Pennsylvania, helps retirees across Central PA take full advantage of this unique "Keystone State" benefit while navigating the federal taxes that still apply in 2026.
Pennsylvania gives retirees a home-field advantage. Here is exactly how the 2026 rules benefit you.
What Retirement Income Is Tax-Free in Pennsylvania?
PA exempts these categories from the state's 3.07% flat tax:
- Social Security benefits: 100% exempt. Every dollar is tax-free at the state level.
- Pension income: Exempt once you meet the plan's age/service requirements (usually age 60+).
- 401(k) and IRA distributions: Tax-free at the state level, whether Traditional or Roth.
- Military retirement pay: 100% exempt.
How Does PA Compare to Our Neighbors?
Living in Central PA vs. moving across the border can save you thousands. For a couple with $100,000 in retirement income:
- In Pennsylvania: You pay $0 in state tax on that income.
- In New Jersey: You could pay $3,000 to $5,000 in state tax.
- In Maryland: Between state and county taxes, you could owe $5,000+.
Over a 20-year retirement, that "PA Advantage" is easily worth $100,000 in your pocket rather than the state's.
The 2026 Federal Landscape: IRMAA and RMDs
While PA is tax-friendly, the IRS still wants their cut. For 2026, three big factors have changed:
1. Medicare IRMAA Surcharges: If your modified adjusted gross income (MAGI) from 2024 exceeds $109,000 (single) or $218,000 (married), your Medicare premiums spike. We help you time distributions to stay below these cliffs.
2. RMD Age: Under the SECURE 2.0 Act, Required Minimum Distributions generally start at age 73. If you turn 73 in 2026, you must begin taking money out of your traditional accounts, even if you don't need it.
3. Enhanced Senior Deduction: New for the 2026 tax season, seniors age 65+ get a $6,000 extra federal deduction ($12,000 for couples). Note that this deduction begins to phase out for single filers with MAGI over $75,000 and joint filers over $150,000.
The PA Inheritance Tax: The "Gotcha"
While PA has no "Estate Tax," it does have an Inheritance Tax that applies regardless of the estate's size. IRAs are generally subject to this tax unless passing to a spouse.
- Spouse: 0%
- Children/Grandchildren: 4.5%
- Siblings: 12%
- Other Heirs: 15%
Pro-Tip: Paying this tax within 90 days of the date of death earns you a 5% discount on the total bill. This is a critical move for families in Harrisburg and Mechanicsburg protecting an inheritance.
Talk to PAC Financial
Ready to build your 2026 retirement game plan? Call PAC Financial at (717) 564-6400. We serve Harrisburg, Mechanicsburg, Camp Hill, Hershey, and Carlisle with personalized retirement tax strategies.
Compliance Notice
This information is for educational purposes only. Tax laws are subject to change. Consult with a tax professional. PAC Financial is a financial advisory firm serving Central Pennsylvania. Securities and advisory services offered through Osaic Wealth, Inc. Member FINRA/SIPC.