Does Oregon Tax Pensions and Social Security?

Does Oregon tax pensions and Social Security? Oregon fully exempts Social Security benefits from state income tax, but it taxes almost every other kind of retirement income, including private pensions, 401(k) and 403(b) withdrawals, traditional IRA distributions, annuity payments, federal pensions, and Oregon PERS benefits.¹² A handful of credits and subtractions soften the bill for some retirees, but none of them turn Oregon into a tax-free state for pension income.

Pension and Retirement Income Oregon Taxes

Oregon starts your state return with your federal taxable income, so distributions that are taxable federally are generally taxable in Oregon too.² That sweeps in the retirement income most people live on:

Private employer pensions (defined-benefit plans) are fully taxable.
Withdrawals from 401(k) and 403(b) plans are taxable when taken.
Traditional IRA distributions are taxable, and Roth conversions are taxable in the year of conversion.
Commercial annuity payments are taxable to the extent they exceed your cost basis.
Federal civilian pensions are taxable, with a partial carve-out for service before October 1991 (see below).
Oregon PERS benefits are fully subject to Oregon income tax, though some Tier One members receive a supplemental payment that offsets part of the hit.

Military retirement pay is treated the same way as other pensions under current law. A 2025 bill, HB 2050, would exempt military retirement pay from Oregon tax beginning with the 2026 tax year, with eligibility limited (as amended) to disabled veterans, members of reserve components and the National Guard, and surviving spouses of veterans. As of mid-2025 the bill remained in committee and had not become law, so planning around it is premature.³⁴

What Oregon Does Not Tax

Social Security Benefits

Oregon fully exempts Social Security. Any Social Security income that is included in your federal adjusted gross income is subtracted on your Oregon return, so you pay zero Oregon tax on those benefits no matter how high your total income climbs.¹ This covers both retirement and survivor benefits, and Tier 1 Railroad Retirement benefits receive the same treatment.

Qualified Roth Distributions

Because Oregon piggybacks on federal taxable income, qualified Roth IRA and Roth 401(k) distributions are not taxed by Oregon either. A distribution is qualified if the account has been open at least five years and you are 59½ or older (or meet another qualifying event such as disability). Pull Roth earnings before meeting those requirements and the taxable portion flows through to your Oregon return along with your federal one.

What You’ll Actually Pay on Taxable Retirement Income

Oregon’s income tax is progressive, and for most retirees it climbs quickly. For the 2026 tax year, single filers pay 4.75% on the first $3,750 of taxable income, 6.75% from $3,750 to $9,375, 8.75% from $9,375 to $125,000, and 9.9% above $125,000. Joint filers hit those rates at roughly double the thresholds, with the 9.9% top rate kicking in above $250,000.⁵ Oregon has no sales tax to add on top, but a retiree pulling a middle-class income from a 401(k) or pension should expect most of it to be taxed at 8.75% or 9.9%.

The Retirement Income Credit

Oregon’s main tax break aimed at retirees is the retirement income credit under ORS 316.157. If you are at least 62 by the end of the year and receive pension income, you can claim a credit equal to 9% of your “net pension income,” capped at your total Oregon tax for the year.⁶

Pension income here is broader than it sounds. It includes distributions from employer pensions, 401(k) and similar defined-contribution plans, IRAs, and deferred compensation plans. The catch is the phase-out. Net pension income is the lesser of your actual pension income or $7,500 (single) or $15,000 (joint) minus your Social Security benefits and any household income above $15,000 (single) or $30,000 (joint).⁵ The credit disappears entirely once household income (not counting Social Security) reaches $22,500 single or $45,000 joint, and sooner than that for anyone also drawing Social Security. In practice this credit helps lower-income retirees and does little for middle- and upper-income households. Claim it on Schedule OR-ASC filed with Form OR-40.

Senior Deductions Available to Everyone

Two breaks apply more broadly:

Additional standard deduction at 65. If you are 65 or older by the end of the tax year, Oregon adds to your standard deduction. For the 2025 tax year, the extra amount is $1,200 for single or head-of-household filers and $1,000 per qualifying spouse on a joint return.⁷ A married couple where both spouses are 65 or older gets $2,000. A taxpayer who is both 65 or older and legally blind gets the extra amount twice. You just claim the higher standard deduction on your OR-40; no special form is needed.

Medical expense subtraction at 66. If you are 66 or older, you can subtract unreimbursed medical expenses from Oregon taxable income under ORS 316.693, even if they fall short of the federal threshold for itemizing. The cap is $1,800 per qualifying individual, or $3,600 on a joint return where both spouses are 66 or older. It phases down at higher incomes: $1,400 per person once federal AGI exceeds $50,000 (joint) or $25,000 (other filers), $1,000 per person above $100,000 (joint) or $50,000 (other), and nothing above $200,000 (joint) or $100,000 (other).⁸

Federal Pension Subtraction for Pre-1991 Service

Retired federal civilian employees with service before October 1, 1991, can subtract part of their federal pension from Oregon taxable income. The subtraction is your total federal pension for the year multiplied by the ratio of months of pre-October 1991 service to total creditable service.⁵ Twenty years of service with ten before October 1991 means half the pension comes off your Oregon income. The subtraction exists because Oregon did not tax public employee pensions before 1991 and grandfathered the earlier portion when that changed. Claim it on Schedule OR-ASC.

The PERS Tax Remedy

Oregon PERS benefits are taxable, but Tier One members hired before July 14, 1995, may receive a supplemental “tax remedy” payment that offsets part of the state tax. It can be worth up to 9.89% of your monthly benefit.⁹ You need at least 10 years of creditable service, though that requirement is waived if you were hired before October 1, 1991.

The remedy is not something you claim on your tax return. PERS adds it to your benefit check, and you must be an Oregon resident to receive it. Certify your residency with PERS by December 15 each year to keep the payment in the following year’s benefits.⁹ If you move out of state, you lose the remedy, but you also stop owing Oregon income tax on your PERS benefits.

Paying Oregon Tax Without a Paycheck

Once an employer is no longer withholding Oregon tax for you, the responsibility shifts. Oregon requires quarterly estimated tax payments if you expect to owe $1,000 or more after withholding and credits. For calendar-year filers the due dates are April 15, June 15, September 15, and January 15 of the following year.¹⁰ To avoid underpayment interest, your payments during the year must equal the lesser of 90% of current-year tax or 100% of prior-year tax.

Many retirees skip quarterly filing by asking the payer of their retirement income to withhold Oregon tax directly from each distribution. Most large plan administrators and the federal Office of Personnel Management can set this up on request.¹⁰

If You Move Out of Oregon

Federal law bars states from taxing retirement income paid to people who are neither residents of nor domiciled in the state. Earn a pension working in Oregon, retire, and move to another state as your permanent home, and Oregon cannot tax those distributions. The move has to be real. Oregon defines domicile as your true, fixed, permanent home, and it continues until you both abandon the old one and establish a new one somewhere else. Spending winters in Arizona while keeping your Oregon house as home base does not change your domicile, and Oregon will keep taxing your retirement income.¹¹

1
Oregon Department of Revenue. Publication OR-PIT-VET, Personal Income Tax Items of Interest to Oregon Veterans
2
Legal Information Institute. Oregon Admin Code 150-316-0060 – Taxable Income of Resident
3
Oregon State Legislature. HB2050 2025 Regular Session
4
Oregon State Legislature. HB 2050 Staff Measure Summary
5
Oregon State Legislature. Oregon Revised Statutes Chapter 316 – Personal Income Tax
6
Oregon State Legislature. Oregon Revised Statutes Section 316-157 – Credit for Retirement Income
7
Oregon Department of Revenue. 2025 Publication OR-17, Oregon Individual Income Tax Guide
8
Oregon State Legislature. Oregon Revised Statutes Section 316-693 – Subtraction for Medical Expenses of Elderly Individuals
9
State of Oregon PERS. Tax Remedy Information
10
Oregon Department of Revenue. Publication OR-ESTIMATE, Oregon Estimated Income Tax Instructions
11
Legal Information Institute. Oregon Admin Code 150-316-0183 – Gross Income of Nonresidents; Retirement Income Derived from Oregon Sources