How Pension Income Is Taxed
- Federal income tax: pension payments are ordinary income on Form 1099-R. The part that returns after-tax contributions is tax-free.
- Withholding: monthly pension payments are withheld from Form W-4P; lump-sum distributions eligible for rollover are withheld at a mandatory 20%.
- No FICA: Social Security and Medicare tax do not apply to pension income.
- State tax: Illinois, Pennsylvania and Mississippi exempt most retirement income; other states tax pensions in full or in part.
Senior Deductions for 2026
Retirees aged 65 or older get 2 extra deductions on the federal return:
- Additional standard deduction: $2,050 for a single filer and $1,650 per spouse married filing jointly.
- Senior deduction: $6,000 per person for tax years 2025 to 2028, reduced by 6% of modified AGI above $75,000 ($150,000 joint).
| Monthly pension (single, 65+) | Federal tax / year | Take-home / month |
|---|---|---|
| $1,500 | $0 | $1,500 |
| $2,500 | $585 | $2,451.25 |
| $3,500 | $1,894 | $3,342.17 |
| $5,000 | $4,054 | $4,662.17 |
| $7,500 | $9,397 | $6,716.92 |
Pension and Other Retirement Income
Other retirement income stacks on top of the pension in the brackets. Up to 85% of Social Security benefits becomes taxable when provisional income passes $34,000 single or $44,000 joint. Enter the taxable part of Social Security and IRA withdrawals as other income.
The 401(k) Paycheck Calculator covers saving before retirement.
How Much Pension Will I Get
A traditional pension pays years of service × a benefit multiplier × your final average salary. The plan document sets the multiplier and how the average salary is measured.
Yearly pension = Years of service × Multiplier × Final average salary
The federal FERS basic annuity is a common example. Its multiplier is 1%, or 1.1% for those who retire at 62 or later with at least 20 years of service. Thirty years at 1% on an $80,000 high-3 average pays $24,000 a year.
Before age 65 and without the senior deductions, that pension leaves $1,934.17 a month after federal tax for a single retiree in Texas, with $790 of federal tax for the year. Enter the yearly amount and pick "Year" in the calculator.
Military Pension Calculator: High 3 and BRS
Military retired pay uses the same formula with a 2.5% multiplier under the High-3 system and 2.0% under the Blended Retirement System (BRS), applied to the average of the highest 36 months of basic pay.
| 20 years, $70,000 high-3 basic pay | Retired pay / year | Federal tax / year | After tax / month |
|---|---|---|---|
| High-3 (2.5%) | $35,000 | $2,020 | $2,748.33 |
| BRS (2.0%) | $28,000 | $1,190 | $2,234.17 |
Military retired pay is taxable federal income, reported on Form 1099-R. VA disability compensation is not taxable, so leave it out of the calculator. Single filer, no state tax, under 65.
Pension Tax Before and After Age 65
Turning 65 lowers the federal tax on the same pension, because the extra standard deduction and the senior deduction take more of it out of taxable income.
| $2,500 a month, single | Federal tax / year | Take-home / month |
|---|---|---|
| Under 65 | $1,420 | $2,381.67 |
| 65 or older | $585 | $2,451.25 |
State tax comes on top. In a state that taxes the full pension at 5%, the same $2,500 monthly pension at 65 owes $1,500 of state tax a year and leaves $2,326.25 a month. Choose "Other state (enter rate)" to test your state's rate.
Pension Tax for Married Retirees
A married couple filing jointly gets the larger joint standard deduction plus senior deductions for each spouse aged 65 or older.
A $4,000 monthly pension for a married couple in Texas pays $815 of federal tax a year and leaves $3,932.08 a month. The calculator counts the senior deductions for one spouse ($7,650); when both spouses are 65 or older, the real tax is lower still.
Pension Withholding and Form W-4P
Monthly pension payments are withheld from Form W-4P, the pension version of the W-4. With no W-4P on file, the payer withholds as if you were single with no adjustments.
- Periodic payments: Form W-4P sets the withholding, and you can ask for extra or for none.
- Nonperiodic payments: Form W-4R applies, with a 10% default rate.
- Eligible rollover distributions: 20% is withheld unless the money moves directly to an IRA or another plan.
Retirees with no paycheck often pay too little through withholding alone. Raising the W-4P amount avoids a balance due in April.
Lump Sum or Monthly Pension
A lump sum taken in cash is taxed in one year, so much of it lands in higher brackets; monthly payments spread the tax over many years.
A $300,000 lump sum for a single 65-year-old with no other income pays $67,416.75 of federal tax in that one year. Spread as $2,500 a month, the yearly federal tax is $585.
Rolling the lump sum straight into an IRA defers the tax. Cash taken before age 59½ can also owe a 10% additional tax, with an exception for workers who leave an employer plan in or after the year they turn 55. Required minimum distributions start at age 73.
Frequently Asked Questions
How much tax do I pay on my pension?
You pay federal income tax at your bracket rate and state tax where it applies, but no FICA. A $2,500 monthly pension for a single 65-year-old pays $585 of federal tax a year.
Is pension income subject to Social Security tax?
No. Pension income is not subject to Social Security or Medicare tax.
How much federal tax is withheld from a pension lump sum?
A lump-sum pension distribution eligible for rollover is withheld at a mandatory 20% federal rate unless it moves directly to an IRA or another plan.
How much pension will I get?
Your pension is years of service × the plan multiplier × your final average salary. Thirty years at 1% of an $80,000 average is $24,000 a year before tax.
Is a federal government pension taxable?
Yes. A FERS or CSRS annuity is taxable federal income, except the part that returns your own after-tax contributions.
Is military retirement pay taxable?
Yes. Military retired pay is taxable federal income on Form 1099-R. VA disability compensation is not taxable.
Do I need to fill out a W-4P for my pension?
You should. Without a W-4P the payer withholds as if you were single with no adjustments, which may be too much or too little.
Does the senior deduction apply to pension income?
Yes. The $6,000 senior deduction applies to any taxable income of a person aged 65 or older, pensions included, for 2025 to 2028. It lowers the tax on a $2,500 monthly pension from $1,420 to $585 a year here.
Is this a gross to net pension calculator?
Yes. Enter the gross pension or withdrawal to see federal and state income tax and the net amount. Pension income does not pay Social Security or Medicare tax, so income tax is the only deduction.