Does Arizona Have State Income Tax For Retirees? 401(k), IRA & Pension

Yes. Arizona has a 2.5% state income tax for retirees, but Social Security and military retirement benefits are exempt. Taxable pensions, traditional IRA withdrawals, and other retirement income may be subject to Arizona income tax, depending on the type and amount of income.

Arizona imposes a state income tax on individuals, including retirees.

Retirement income is subject to Arizona tax rules based on the type of income received.

The state also provides exclusions for certain retirement benefits.

Retirement Tax Friendliness by State

Arizona Retirement Tax Friendliness by State: Comparison

Income, Social Security, pension, IRA/401(k), and sales tax treatment for retirees

Tax-friendly Moderately tax-friendly Less tax-friendly

Hover or tap a state to see details

Retirement-income tax treatment is more nuanced than simply “taxed” or “exempt” — many states apply age-based deductions, income limits, or military/public-pension exceptions, and some tax Social Security only above certain income thresholds. Income-tax rates are based primarily on Tax Foundation state-by-state data; sales-tax figures follow Tax Foundation’s methodology for state, average local, and combined rates. Property tax is not yet included in this dataset. This is a planning overview, not tax advice — verify current thresholds with each state’s tax agency before publishing.

How Are Retirement Accounts Divided in an Arizona Divorce?

See what may be considered marital property Understand how 401(k)s and IRAs are handled

See How It Gets Divided

Taxable Retirement Income in Arizona

Retirement Income	Arizona Taxable?
Private pension	Yes
Traditional IRA withdrawals	Yes
401(k) / 403(b) withdrawals	Yes
457 plan withdrawals	Yes
Taxable annuity income	Yes
Federal civil-service pension	Yes*
Arizona government pension	Yes*

All retirement distributions count as ordinary income for Arizona (AZ) tax purposes unless specifically excluded.

IRAs and 401(k)/403(b) withdrawals – taxed at 2.5%
Private pensions and annuities – taxed at 2.5%
Unemployment/vesting/trust distributions – treated like other income.

Which Retirement Income Is Tax-Free?

Several common retirement incomes are exempt from Arizona tax:

Retirement income	Arizona tax treatment
Social Security benefits	100% tax-free
Railroad Retirement benefits	100% tax-free
U.S. military retirement pay	100% tax-free
U.S. federal government pension	Up to $2,500 excluded
Arizona state & local government pensions	Up to $2,500 excluded

Social Security Benefits (and Railroad Tier I) – All Social Security and Tier I railroad retirement are tax‑free in AZ.
U.S. Military Retirement Pay – 100% excluded. Veterans’ disability pensions and related federal benefits are also non‑taxable.
Federal and Arizona Public Pensions (limited) – Arizona allows a subtraction for up to $2,500 of annual pension/annuity from certain public sources. Qualifying plans include U.S. civil service, Social Security Administration, and Arizona state/local public retirement systems.
VA Disability, Workers’ Comp, Public Assistance – These are not part of income under AZ law (VA disability and workers’ comp are not subject to income tax.

So, Social Security and military pensions are fully free, and certain government pensions enjoy a small $2,500 exclusion.

All other distributions such as IRAs, 401(k)s, private annuities, and out-of-state pensions are taxable as ordinary income.

Which States Don’t Tax 401(k) Withdrawals?

See which states don’t tax 401(k) withdrawals and how state income taxes could affect your retirement income.

See the 401(k) Tax-Free States

Arizona’s 2.5% Income Tax Rate

Arizona imposes a flat 2.5% rate on taxable income. Prior to this change:

Arizona Retirement Income Tax Deductions

Arizona provides only a few special tax benefits aimed at retirees:

Retirement Income	AZ Tax?	AZ Benefit
Social Security	No	100% excluded
Military retirement	No	100% excluded
Railroad retirement	No	100% excluded
Arizona government pension	Partly	Up to $2,500/person excluded
Federal civilian pension	Partly	Up to $2,500/person excluded
Out-of-state government pension	Yes	No AZ $2,500 subtraction
Private pension	Generally yes	No special AZ exclusion
Traditional IRA / 401(k)	Generally yes	No general AZ retirement exclusion
RMDs	Generally yes	No special RMD exclusion
Qualified Roth IRA	Generally no	Generally not included in taxable income

So, the main retiree deductions/exemptions are: $2,500 pension exclusion and Social Security/military exemptions.

Otherwise, Arizona’s relatively low flat tax means all ordinary income, including retirement distributions, is taxed at 2.5% after the standard deduction.

How Arizona Compares With Other Retirement States

State	State Income Tax	Social Security	Pension Income	IRA / 401(k)
Florida	None	Tax-Free	Tax-Free	Tax-Free
Texas	None	Tax-Free	Tax-Free	Tax-Free
Nevada	None	Tax-Free	Tax-Free	Tax-Free
Wyoming	None	Tax-Free	Tax-Free	Tax-Free
Tennessee	None	Tax-Free	Tax-Free	Tax-Free
South Dakota	None	Tax-Free	Tax-Free	Tax-Free
New Hampshire	None	Tax-Free	Tax-Free	Tax-Free
Pennsylvania	3.07% flat	Tax-Free	Tax-Free*	Tax-Free*
Arizona	2.50% flat	Tax-Free	Taxable*	Taxable
Mississippi	4.4%	Tax-Free	Tax-Free*	Tax-Free*
Georgia	5.19%	Tax-Free	Partially Tax-Free*	Partially Tax-Free*
North Carolina	4.25% flat	Tax-Free	Taxable	Taxable

Social Security is exempt in all of the above (8 of 11 states have no income tax, and PA, MS, GA exclude SS).

Pennsylvania and Mississippi impose a flat rate on wages but fully exempt retirement; Georgia offers large retiree deductions. Sales and property taxes vary: Florida and Nevada have moderate sales tax, but no income tax; NH has no sales tax, etc.

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Is Military Retirement Income Taxable?

See Military Tax Rules

Arizona Retirement Income Tax FAQ

Is Social Security taxed by Arizona?

No, Arizona does not tax Social Security benefits, including Tier I railroad retirement benefits.

What about pensions from government jobs?

Yes, Arizona generally taxes federal, state, and local government pensions as income, but you can exclude up to $2,500 per taxpayer each year from qualifying government pension income.

Are IRA and 401(k) withdrawals taxed?

Yes, Arizona generally taxes taxable withdrawals from IRAs, 401(k)s, 403(b)s, and similar retirement accounts at its 2.5% income tax rate.

Are Required Minimum Distributions (RMDs) handled differently?

No, Arizona generally taxes RMDs the same way as other taxable retirement-account withdrawals and does not provide a separate RMD exemption.

Is military retirement pay taxed?

No, Arizona exempts U.S. military retirement pay from state income tax.

What is Arizona’s income tax rate?

Arizona has a flat 2.5% income tax rate on taxable income.

Are there tax credits or special deductions for seniors?

Yes, eligible low-income taxpayers age 65 or older, or those under 65 receiving SSI, may qualify for Arizona’s refundable Senior Property Tax Credit of up to $502.

How do I claim the $2,500 pension exclusion?

You generally claim the exclusion on your Arizona return by subtracting up to $2,500 of qualifying pension income for each eligible taxpayer.

Are there any recent law changes affecting retirees?

Yes, Arizona adopted its 2.5% flat income tax rate beginning in 2023 and fully exempted military retirement pay beginning in tax year 2021.

Do part-year or nonresidents pay Arizona tax on retirement income?

Generally, Arizona residents are taxed on all income, while part-year and nonresidents generally pay Arizona tax only on Arizona-source income.

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