Does Massachusetts Tax Pensions? Exemptions, Rates, and Surtax

Massachusetts does tax pensions, but with major exceptions. Private-sector pensions and most retirement account distributions are taxed at the state’s flat 5% income tax rate, while pensions from the U.S. government, the U.S. military, the Commonwealth of Massachusetts and its cities and towns, Social Security, and railroad retirement are fully exempt. Whether your pension is taxable comes down to who funded it.

Pensions That Are Fully Exempt

Several categories of retirement income are excluded from Massachusetts gross income entirely. If your pension falls into one of these, you don’t report it as taxable on your state return.

Contributory pensions from the Commonwealth of Massachusetts or any of its political subdivisions, including cities, towns, counties, and systems like the Massachusetts Teachers’ Retirement System.
U.S. government civilian pensions, including the Federal Employees Retirement System (FERS) and the Civil Service Retirement System (CSRS).
Military retirement pay for members of the U.S. Uniformed Services, along with Survivor Benefit Plan payments. Military pay is exempt even where the retiree did not contribute to the system.
Social Security benefits, even the portion that is taxable federally.
Railroad retirement annuities (Tier 1 and Tier 2), which federal law prohibits any state from taxing.¹

The government pension exemptions come from Massachusetts General Laws Chapter 62, Section 2. For state, local, and federal civilian pensions, the exemption applies to contributory systems where the employee paid in.²

Pensions That Are Taxed

If your pension isn’t on the exempt list, Massachusetts taxes it. That covers most private-sector pensions, whether from a former corporate employer, a union, or any non-government plan.³

The pension’s state of origin doesn’t shield you. A private pension paid by a Texas company to a Massachusetts resident is fully taxable in Massachusetts. So is a public pension from another state’s government: a New York state retirement pension is exempt in New York, but if you now live in Massachusetts, Massachusetts taxes it in full. Residency drives the answer, not where the pension was earned.

How 401(k), IRA, and Similar Distributions Are Taxed

Retirement account distributions follow rules that depend on the account type and, in some cases, on when contributions were made.

401(k) and 401(a) distributions are fully taxable.
Traditional IRA distributions are taxable only above your Massachusetts previously taxed contributions. Because Massachusetts didn’t allow a deduction for IRA contributions the way the federal government did, your state basis is often higher than your federal basis.
403(b) contributions made in 1998 and later follow federal treatment. Pre-1998 mandatory contributions were already taxed as wages by Massachusetts, so that portion of a distribution is excluded from state income.
Roth IRAs and designated Roth accounts in 401(k), 403(b), and 457(b) plans: qualified distributions are generally not taxable.
SEP and SIMPLE plan distributions are taxable above your Massachusetts previously taxed contributions.

The concept doing the work here is “Massachusetts previously taxed contributions.” Because the state historically taxed some contributions that the federal government deferred, the taxable share of a distribution on your state return can be smaller than what shows up as taxable federally.⁴

The 5% Rate and the Millionaire Surtax

Taxable pension and retirement income is taxed at Massachusetts’s flat 5% rate, the same rate that applies to wages.⁵

An additional 4% surtax applies to taxable income above an annually adjusted threshold. For the 2026 tax year the threshold is $1,107,750.⁶ Pension income counts toward that threshold along with your other taxable income, so a large lump-sum distribution in the same year as substantial investment income can push you across the line and produce an effective 9% rate on the amount over the threshold.

Getting Credit for Your Cost Basis

If you made after-tax contributions, or if Massachusetts taxed contributions that were deferred federally, you have a state cost basis in the account. That money isn’t taxed again when it comes back to you.

Under Massachusetts General Laws Chapter 62, Section 2(F), you can exclude distributions from plans like 403(b)s, 404 plans, and IRAs until the excluded amount equals what Massachusetts previously taxed.² For traditional IRAs, the state tracks this figure separately from the federal one, and it may include contributions that were deductible federally but not at the state level.⁷

Keep your contribution records. You’ll need them to compute the excludable portion of each distribution, especially for traditional IRAs and for 403(b)s with pre-1998 contributions.

Pensions Taxed by Another State

If another state also taxes the same pension income, Massachusetts allows a credit for income taxes paid to other jurisdictions. Claim it on Schedule OJC and enter the result on Form 1, Line 30.⁸

The credit equals the lesser of the tax actually owed to the other state on that income or the Massachusetts tax on the same income. Use the actual liability from the other state’s return, not what was withheld. The credit does not apply to federal tax, foreign taxes (except Canadian), or local or city taxes.

What Happens If You Move Out of Massachusetts

Once you leave, Massachusetts loses the power to tax your pension. Under 4 U.S.C. § 114, no state may impose income tax on the retirement income of someone who is not a resident or domiciliary of that state.⁹ The protection covers qualified plans (401(k), 403(b), 457, IRAs), government plans, and most standard retirement arrangements, and it has been federal law since 1996.

So if you earned your pension working in Massachusetts but now live in New Hampshire or Florida, Massachusetts can’t tax the distributions. Where you live when you receive the income controls, not where you earned it.

Foreign Pensions

A pension from a foreign government or employer is generally taxable in Massachusetts. Federal tax treaties may reduce or eliminate federal tax on certain foreign pension payments, but Massachusetts does not necessarily honor those treaty provisions. If a treaty exempts your foreign pension federally, don’t assume the state follows suit; in most cases Massachusetts taxes the income as part of your worldwide income.

Reporting Pension Income on Your Return

Your pension payer sends Form 1099-R showing total distributions and the federally taxable amount. That’s the starting point, but the Massachusetts taxable amount can differ if you have previously taxed contributions at the state level.

Report taxable pension income on Massachusetts Form 1 if you’re a resident, or Form 1-NR/PY if you’re a part-year resident or a nonresident with Massachusetts-source income. Exempt pension income (government, military, Social Security, railroad retirement) should not be included in your taxable total, though some forms ask you to note it separately.³

1
Office of the Law Revision Counsel. 45 U.S. Code 231m – Assignability; Exemption From Levy
2
General Court of Massachusetts. Massachusetts General Laws Part I, Title IX, Chapter 62, Section 2
3
Massachusetts Department of Revenue. Massachusetts Tax Information for Seniors and Retirees
4
Massachusetts Department of Revenue. View Tax Treatment of Retirement Plan Contributions and Distributions
5
Massachusetts Department of Revenue. Massachusetts Tax Rates
6
Massachusetts Department of Revenue. Massachusetts Circular M – Income Tax Withholding Tables at 5.0% Effective January 1, 2026
7
Massachusetts Department of Revenue. Tax Treatment of Non-Government Pensions in Massachusetts
8
Massachusetts Department of Revenue. Learn About the Income Tax Paid to Another Jurisdiction Credit
9
Office of the Law Revision Counsel. 4 U.S. Code 114 – Limitation on State Income Taxation of Certain Pension Income