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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.
Pension contributions can be tax deductible. The Internal Revenue Service allows businesses to establish retirement plans for their employees that are tax deductible, provided the plans adhere to IRS Code 401(a) and the Employee Retirement Income Security Act, or ERISA.