Does Philadelphia Tax Retirement Income?
When you’re looking to retire, it’s fun to think of the many places you could move to. Philadelphia is a city rich with history and culture and could make an enjoyable place to spend your post-retirement years. Plus, if you want to stretch your retirement income just a little further, you should know that living in Philadelphia will allow you to take advantage of Pennsylvania’s tax-friendly attitude toward retirees.
Pennsylvania is considered one of the most tax-friendly states for retirees anywhere in the U.S. Whether you live in Philadelphia or elsewhere in the Keystone State, PA does not tax retirement income if you are age 59½ or older.
If you’re a Pennsylvania resident in Philadelphia or another Pennsylvania locale, your retirement income will not be taxed. While you still have to pay federal income taxes, if you live in PA — where there’s a low flat income tax rate as it is — this law may lower your overall tax obligation.
Most retirees pool their income from several different sources, including:
- Social security: The state of Pennsylvania does not tax social security income, whether it’s your own or you’re a widow entitled to your spouse’s social security check.
- Private or public pensions: Whether you earned a public pension working for the state or local government or you received a pension from a private corporation, pension income will not be taxed in Philadelphia or any other area in Pennsylvania.
- Individual retirement account (IRA): Some employers don’t offer pensions, but they do invest money on your behalf into an IRA that can be used once you retire. While IRAs already offer a variety of tax advantages, living in PA ensures these funds will never be taxed when they’re used as income.
- 401(k): A 401(k) is another type of retirement investment account, with many employers matching the money you save during your time on the job. Your 401(k) is completely secure from taxation when you live in Pennsylvania.
Besides offering income tax exclusions on this wide variety of retirement income, Pennsylvania also allows employer-sponsored deferred-compensation plans, United Mine Workers’ pensions, Railroad Retirement benefits, military pensions, civil-service annuities and other retirement accounts to be exempt from taxation.
Because of Pennsylvania’s tax-friendly attitude toward those in retirement, many older adults are choosing to retire in Pennsylvania — and you can do the same.