Does Massachusetts Tax Pensions and Retirement Income?

Massachusetts does tax pensions and retirement income, but the answer depends heavily on the source. Social Security benefits, contributory federal pensions, Massachusetts state and local government pensions, and military pensions are fully exempt from state income tax. Private pensions, traditional 401(k) distributions, and traditional IRA withdrawals are taxable at the state’s flat 5% rate. Retirees with taxable income above roughly $1.1 million in a single year also owe an additional 4% surtax on the amount over the threshold, which can catch people off guard when they take a large lump-sum distribution.

Retirement Income That Massachusetts Does Not Tax

Social Security

Massachusetts does not tax Social Security benefits at all. Even if a portion of your benefits is taxable on your federal return, you subtract it when calculating Massachusetts gross income.¹ The exclusion is built into the state’s definition of gross income under Chapter 62, Section 2.² No special form or schedule is required.

Federal Civilian and Military Pensions

Pension income from a contributory retirement fund of the U.S. government is exempt. This covers Civil Service Retirement System and Federal Employees Retirement System pensions, along with other contributory federal plans. The key word is “contributory,” meaning the employee paid into the plan.³

Military pensions are exempt as well, and this is the one category where the plan does not have to be contributory. Noncontributory pension income and survivorship benefits from all branches of the Armed Forces, plus the commissioned corps of the Public Health Service and NOAA, qualify.⁴

Massachusetts State and Local Pensions

Contributory pensions from the Commonwealth or any of its political subdivisions are fully exempt. That covers retired teachers, police officers, firefighters, and other municipal and state employees who participated in the state’s contributory retirement system.³

Out-of-State Government Pensions

A contributory pension from another state or its political subdivisions may be exempt in Massachusetts under a reciprocity rule. The statute requires that the other state not tax contributory pensions from Massachusetts or its subdivisions.⁵ The mechanics differ from the other exemptions: you report the pension on Line 4 of Form 1 and then claim a deduction on Schedule Y, Line 13.⁴ Confirm your former state’s rules before claiming it.

Retirement Income That Is Taxable at 5%

Private Pensions and Annuities

Income from private-sector defined benefit plans and annuities is taxable at the 5% Part B rate.⁴ You generally report the same taxable amount that appears on your federal return (Form 1040, Line 5b) on Massachusetts Form 1, Line 4.

If you made after-tax contributions to a private pension that Massachusetts previously taxed, you can subtract those contributions from the taxable amount until you’ve recovered your full basis. After that, the entire distribution is taxable.⁴

401(k)s and Similar Employer Plans

Distributions from traditional 401(k) plans and similar employer-sponsored retirement accounts are taxable at 5%, following the federal treatment. Because contributions went in pre-tax, the full distribution is generally taxable. Report the amount on Form 1, Line 4.⁴

Traditional IRAs and Keoghs

Traditional IRA and Keogh distributions are also taxable at 5%, but they take a different line on the return. Rather than Line 4, they go on Schedule X, Line 2.⁴ If you made nondeductible contributions that Massachusetts already taxed, you can adjust the taxable amount to recover them tax-free.

Roth IRAs and Roth 401(k)s

Qualified distributions from Roth IRAs and Roth 401(k)s are entirely exempt from Massachusetts income tax. Contributions went in after tax and earnings grow tax-free, so nothing comes out taxable as long as the distribution is qualified. A distribution qualifies when the account has been open at least five years and you are at least 59½, permanently disabled, or using up to $10,000 for a first home purchase.⁶

Early Withdrawals Before Age 59½

Taking money out of a retirement account before 59½ triggers two separate tax hits. The federal government imposes a 10% additional tax on the taxable portion of the early distribution, on top of regular income tax.⁷ Massachusetts then taxes that same amount at 5%. There is no separate state early-withdrawal penalty, but the state does not exempt the income just because you paid a federal penalty on it.

Federal exceptions to the 10% penalty include distributions after the account owner’s death, total and permanent disability, substantially equal periodic payments, and unreimbursed medical expenses above 7.5% of AGI. For 401(k) plans, separating from service during or after the year you turn 55 (or 50 for public safety employees) waives the penalty as well.⁷ These exceptions remove the federal penalty but do not change whether Massachusetts taxes the distribution.

The 4% Surtax on Large Distributions

Massachusetts does not have graduated brackets for ordinary income, so a retiree drawing $40,000 from a taxable pension pays the same 5% rate as one drawing $400,000. The one exception is the 4% surtax that applies once combined Part A, Part B, and Part C taxable income exceeds an annually adjusted threshold. For tax year 2026, that threshold is $1,107,750.⁸ Every dollar above the line is taxed at 9% (the base 5% plus the 4% surtax).⁹

Income that is otherwise excluded from taxable income doesn’t count toward the surtax threshold, so an exempt government pension doesn’t push you toward it. But a large 401(k) rollover, lump-sum pension payout, or Roth conversion does. A retiree who might never earn $1.1 million in a normal year can easily cross the line in a year they cash out a sizable retirement account. Spreading distributions across multiple tax years is the most straightforward way to stay below the threshold.

Required Minimum Distributions

Once you reach age 73, federal rules require you to start withdrawing from traditional IRAs, 401(k)s, and most other tax-deferred retirement accounts each year.¹⁰ Required minimum distributions are taxable in Massachusetts to the same extent they’re taxable federally, at the 5% Part B rate.

Missing an RMD carries a 25% federal penalty on the shortfall, dropping to 10% if you correct it within two years.¹⁰ Massachusetts doesn’t impose its own RMD penalty, but you’ll still owe state tax on the distribution whenever you take it. Roth IRAs are not subject to RMDs during the original owner’s lifetime.

Deductions and Credits That Reduce Your Tax

Retirement Contributions Deduction

If you contributed to a U.S. or Massachusetts contributory retirement fund, or paid into Social Security (FICA) or Railroad Retirement during your working years, you can deduct up to $2,000 per taxpayer from Part B taxable income. A married couple filing jointly can claim up to $4,000 if both spouses made qualifying contributions.¹¹ Claim it on Schedule Y.

Age 65 and Over Exemption

Taxpayers 65 or older by the end of the tax year get an additional $700 personal exemption, or $1,400 if both spouses on a joint return qualify.¹² At 5%, that saves $35 per qualifying person, and it’s automatic when you mark the appropriate oval on Form 1.

Senior Circuit Breaker Credit

The Circuit Breaker is the most valuable tax benefit Massachusetts offers older residents. It’s a refundable credit based on the real estate taxes or rent you paid on your principal residence, so if it exceeds your tax liability, you receive the difference as a refund.¹³

For tax year 2025, the maximum credit is $2,820. To qualify, you must be 65 or older, and total income cannot exceed $75,000 for single filers, $94,000 for heads of household, or $112,000 for married couples filing jointly. Homeowners must also have an assessed property value of no more than $1,298,000.¹⁴

For homeowners, the credit equals the amount by which your property taxes (including water, sewer, and stormwater charges) exceed 10% of your total income. For renters, it equals the amount by which 25% of your annual rent exceeds 10% of your total income. Either way, the credit cannot exceed the annual maximum. Claim it by filing Schedule CB.¹⁴

Where Each Type of Income Goes on Form 1

Massachusetts residents file Form 1 to report all income, including retirement income. The amounts from your federal Form 1099-R are the starting point. The reporting lines are:

Taxable private pensions, annuities, and 401(k) distributions: Form 1, Line 4 (enter the taxable amount from your federal return, adjusted for any previously taxed Massachusetts contributions).
Exempt government and military pensions: enter $0 on Line 4 and note the source of the pension on the dotted line to the left.
Traditional IRA and Keogh distributions: Schedule X, Line 2.
Retirement contributions deduction: Schedule Y.
Out-of-state government pension reciprocity deduction: Schedule Y, Line 13 (after reporting the income on Line 4).
Senior Circuit Breaker credit: Schedule CB.

For pensions where you made after-tax contributions, track your cumulative previously taxed contributions and subtract them from the federal taxable amount until you’ve recovered the full basis.⁴

If You Move Out of Massachusetts

If you leave Massachusetts but still receive a pension from a Massachusetts employer, federal law generally protects you. Under 4 U.S.C. § 114, no state may impose income tax on the retirement income of an individual who is not a resident of that state.¹⁵ The protection covers qualified plans including 401(k)s, 403(b)s, IRAs, and governmental plans, as long as the payments are part of a series of substantially equal periodic payments or otherwise meet the statute’s criteria. Once you’ve established residency elsewhere, Massachusetts cannot tax the pension income.

1
Mass.gov. Differences Between MA and Federal Tax Law for Personal Income
2
Mass.gov. Mass. General Laws c.62 Section 2
3
General Court of Massachusetts. Massachusetts General Laws Chapter 62 Section 3
4
Massachusetts Department of Revenue. 2025 Massachusetts Form 1 Instructions
5
General Court of Massachusetts. General Law – Part I, Title IX, Chapter 62, Section 3
6
Internal Revenue Service. Roth IRAs
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Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
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Massachusetts Department of Revenue. Massachusetts Circular M Income Tax Withholding Tables at 5.0% Effective January 1, 2026
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Mass.gov. Massachusetts 4% Surtax on Taxable Income
10
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
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General Court of Massachusetts. HOUSE BILL SUMMARY – H.3231
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General Court of Massachusetts. HOUSE BILL SUMMARY: AN ACT PROVIDING FOR AN INCOME TAX EXEMPTION FOR SENIOR CITIZENS
13
Mass.gov. Massachusetts Senior Circuit Breaker Tax Credit
14
Massachusetts Department of Revenue. TIR 25-7: Annual Update of Real Estate Tax Credit for Certain Persons Age 65 and Older
15
Office of the Law Revision Counsel. 4 U.S. Code 114 – Limitation on State Income Taxation of Certain Pension Income