Does Delaware Tax Retirement Income? Exemptions, Exclusions, Rates

Delaware does tax most retirement income, but with major breaks that leave many retirees owing little or nothing. Social Security benefits are completely exempt from Delaware state income tax. Residents aged 60 and older can also exclude up to $12,500 per person of pension and other eligible retirement income before the state’s regular tax rates apply. Anything above that threshold is taxed on Delaware’s progressive scale, which runs from 0% to 6.95% in 2026.

Social Security and Railroad Retirement Are Fully Exempt

Delaware does not tax Social Security benefits at any income level. Your federal Social Security payments are simply left out of your Delaware taxable income.¹ Social Security Disability Insurance follows the same treatment.

Railroad Retirement benefits are also fully exempt and should not be reported in your Delaware taxable income.¹ Because these benefits sit entirely outside the state tax base, they don’t count against the $12,500 exclusion described below. A railroad retiree with a 401(k) can exclude the railroad benefits in full and still apply the pension exclusion to the 401(k) withdrawals.

The $12,500 Retirement Income Exclusion for Age 60 and Older

The main tax break beyond Social Security is the pension and retirement income exclusion. If you are 60 or older, you can subtract up to $12,500 in eligible retirement income from your federal adjusted gross income before Delaware calculates your tax. Married couples who both qualify can each claim a separate $12,500, for a combined household maximum of $25,000.¹

Eligible sources include:

Employer-sponsored pension payments
Traditional IRA distributions
Withdrawals from 401(k), 403(b), and 457 plans
Keogh plan distributions
Dividends, interest, and capital gains
Net rental income from real property

The $12,500 cap is a combined total across all these categories per person, not a per-source amount.¹ Any retirement income above the cap flows into your Delaware taxable income at the regular rates.

A 67-year-old drawing $40,000 from a 401(k) would subtract $12,500, leaving $27,500 in Delaware taxable retirement income before standard deductions and credits reduce it further.

The exclusion is not limited to Delaware-earned pensions. Federal civil service pensions, state and local government pensions from other states, and private-sector pensions earned elsewhere all qualify.²

Roth IRA Withdrawals

Qualified Roth IRA distributions aren’t included in your federal adjusted gross income, and because Delaware starts its calculation from federal AGI, they pass through tax-free at the state level without using any of your $12,500 exclusion.

If You’re Under 60

Retirees younger than 60 get a much smaller break: just $2,000 per year, and only against actual pension income from an employer or government source. The broader category of eligible retirement income — IRA distributions, dividends, interest, capital gains — does not qualify for the under-60 exclusion.³

Military Pensions Get a Separate, Larger Break

Military retirees qualify for their own exclusion regardless of age. For 2026, military pension recipients can exclude up to $12,500.⁴ That matches the general exclusion for those 60 and over, but it’s far more valuable for younger military retirees who would otherwise be capped at $2,000.

The military exclusion is scheduled to rise each year, reaching $25,000 per person by 2029.⁵ It operates separately from the general pension exclusion. A military retiree aged 60 or older with both a military pension and a civilian 401(k) can apply the military exclusion to the pension and the regular $12,500 exclusion to the 401(k) distributions.

Tax Rates on the Income That Remains

Retirement income above the exclusions is taxed on Delaware’s regular progressive brackets. For taxable years beginning after December 31, 2025:⁶

0% on the first $2,000
2.0% from $2,001 to $5,000
4.0% from $5,001 to $20,000
5.5% from $20,001 to $60,000
6.6% from $60,001 to $125,000
6.75% from $125,001 to $250,000
6.95% above $250,000

The two highest brackets are new for 2026. For most retirees, the effective top rate stays at 6.6% or lower. Delaware has no local or municipal income tax, so the state rate is the only income tax you’ll pay.⁶

Standard Deduction and Senior Credits

Before the rates apply, Delaware allows a standard deduction of $3,250 for single filers and $6,500 for joint filers in 2026. Residents who are 65 or older (or blind) add another $2,500 per qualifying person.⁷

There’s also a $110 personal credit per exemption, plus a separate $110 credit for each filer who is 60 or older. Stacked with the pension exclusion and the extra standard deduction, these further shrink the tax bill for senior households.⁷

If You Moved to Delaware Mid-Year

Part-year residents get a prorated exclusion. You calculate the ratio of retirement income received while a Delaware resident to your total retirement income for the year, then apply that ratio to the $12,500 cap.⁸ A retiree who moved in June and received 55% of annual pension income after the move could exclude roughly $6,875. Part-year filers use Form PIT-NON.

Quarterly Estimated Payments

Retirees whose income isn’t subject to withholding frequently need to pay quarterly. Delaware requires estimated payments whenever expected tax liability after withholding tops $800 for the year.⁷

Due dates are April 30, June 15, September 15, and January 15 of the following year. If retirement income starts partway through the year, the first payment is due on the next quarterly date after the income begins. Missing them triggers underpayment penalties, so plan ahead if you live off IRA or 401(k) distributions without tax withheld at the source.⁷

1
Delaware Division of Revenue. Personal Income Tax FAQs
2
State of Delaware Department of Finance. The Policy Implications of Delaware’s Tax Treatment of Retirement Income
3
State of Delaware. Delaware Tax Preference Report – Personal Income Tax
4
Justia. Delaware Code Title 30 Chapter 11 Subchapter II Section 1106 – Modifications
5
Delaware General Assembly. Senate Bill 219 – Relating to Personal Income Tax
6
Delaware General Assembly. House Bill 13 – Relating to Personal Income Tax
7
State of Delaware Division of Revenue. Declaration of Estimated Income Tax for Individuals 2026 Instructions
8
State of Delaware Division of Revenue. Individual Income Tax Return Non-Resident Instructions