If you’re retired or planning for retirement in Arizona, one of the first questions you may ask is: Are my benefits taxable? The answer depends on the type of income. Arizona does not tax Social Security benefits, making it more tax-friendly than many other states. However, most other retirement income such as 401(k) withdrawals, IRAs, and pensions is taxed at the flat 2.5% state income tax rate. Certain public pensions, like those from the Arizona State Retirement System (ASRS), may also qualify for partial exemptions. In this guide, we’ll explain exactly which retirement benefits are taxed, which are not, and how these rules affect your paycheck in 2025.
Quick Answer
Yes — most retirement benefits are taxable in Arizona, but there are important exceptions.
- Social Security benefits are fully exempt from Arizona state tax.
- Pensions, IRAs, and 401(k)/403(b) withdrawals are generally taxable at Arizona’s flat income tax rate (2.5% in 2025).
- Some public pensions qualify for a $2,500 annual subtraction per taxpayer.
Which Retirement Benefits Are Taxable in Arizona?
Arizona treats most retirement income the same way it taxes wages. If it’s taxable at the federal level, it’s usually taxable at the state level too.
Taxable retirement income includes:
- Withdrawals from 401(k)s, 403(b)s, and IRAs
- Private and corporate pensions
- Distributions from annuities
These are taxed at Arizona’s flat 2.5% state income tax rate, in addition to federal tax.
If you want to estimate your after-tax income, try the Arizona retirement contribution calculator.
Which Retirement Benefits Are Not Taxed?
Some benefits are shielded from Arizona state tax:
- Social Security benefits → Fully exempt from Arizona taxation.
- Certain military and federal government pensions → Eligible for the $2,500 subtraction.
- Pre-1986 ASRS contributions → Non-taxable portion when distributed.
This makes Arizona relatively tax-friendly for retirees compared to states that tax Social Security.
How Public Pensions (ASRS) Are Taxed
If you’re part of the Arizona State Retirement System (ASRS):
- Contributions made before July 1, 1986 → distributions are not taxed.
- Contributions made after July 1, 1986 → distributions are taxable.
- Each taxpayer may subtract up to $2,500 of qualifying public pension income (civil service, military, ASRS, or other Arizona public pensions).
Arizona also allows you to elect state withholding on your pension benefits, though the default is zero.
Understanding these rules can help retirees plan their income and avoid surprises. For a clearer picture of your net income, use tools like the Arizona retirement contribution calculator or the Arizona paycheck tax calculator.
Comparison Table – Taxable vs. Exempt Retirement Income in Arizona
| Income Source | Taxable in Arizona? | Notes |
|---|---|---|
| Social Security benefits | ❌ No | Fully exempt |
| IRA / 401(k) / 403(b) withdrawals | ✅ Yes | Taxed at 2.5% |
| Private pensions | ✅ Yes | No general exemption |
| Public pensions (ASRS, civil, military) | ✅ Partial | First $2,500 per taxpayer can be subtracted |
| ASRS pre-1986 contributions | ❌ No | Non-taxable |
| ASRS post-1986 contributions | ✅ Yes | Taxed at 2.5 |
Example: Retiree Tax Scenario
Let’s say Linda, a retired Arizona teacher, receives:
- $18,000 from Social Security
- $12,000 from ASRS pension
- $10,000 from IRA withdrawals
What’s taxable?
- Social Security → $0 taxable at the state level
- ASRS pension → $9,500 taxable (after $2,500 subtraction)
- IRA withdrawals → $10,000 taxable
Total Arizona taxable retirement income = $19,500
FAQs About Retirement Income and Arizona Taxes
Do Arizona residents pay state tax on Social Security?
No. Social Security benefits are fully exempt.
Is 401(k) income taxable in Arizona?
Yes. Distributions are taxed as regular income at 2.5%.
Do pensions get taxed in Arizona?
Yes, but government pensions qualify for a $2,500 annual subtraction.
Are ASRS pensions taxable?
Yes — contributions made after July 1, 1986 are taxed; earlier contributions are exempt.
Do military retirees pay Arizona state income tax?
Military pensions may qualify for the $2,500 subtraction.
Harry is the creator of ArizonaPaycheckCalculator.com, a trusted resource for accurate and easy-to-use payroll and tax calculators. With a focus on clarity and precision, Harry helps Arizona residents understand their take-home pay, deductions, and withholdings. Dedicated to making complex calculations simple, he combines financial knowledge with user-friendly tools to save users time and confusion.