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These plans areexcluded from tax on your federal return, but not onyour state income tax return. Once you retire and beginto receive pension benefits, you will pay federal tax onyour retirement payments, but you will not pay PA taxon those benefits.
Quick Guide to Pennsylvania Retirement Income Taxes. 1  Pennsylvania is tax-friendly toward retirees. 2  Social security income is not taxed. 3  Withdrawals from retirement accounts are not taxed. 4  Wages are taxed at normal rates, your marginal state tax rate is 5.0%. 5  Public pension income is not taxed, private pension income is not taxed.