Updated October 7, 2026. Quick answer: Only if you live there. Indiana’s own nonresident booklet says that “Pensions and most interest and dividends are taxed by your state” of residence when you receive them, while an Indiana resident starts from federal adjusted gross income, which includes a pension earned in another state.
Federal civil service pensions in Indiana: does Indiana tax federal pensions.
How Indiana treats a pension earned elsewhere
| Item | What the state documents say |
|---|---|
| Nonresidents | The nonresident booklet lists the kinds of income that are taxed by Indiana for a nonresident, and its list ends with a note that pensions and most interest and dividends are taxed by the state of residence. A full-year nonresident whose only Indiana source income was pensions, interest, dividends or unemployment compensation is not required to file an Indiana return. The source says: “you are not required to file an Indiana income tax return”. The nonresident rule rests on the IT-40PNR booklet; the IT-40 resident booklet repeats that a nonresident with Indiana income other than certain interest, dividends or retirement income files Form IT-40PNR. |
| Residents with a pension earned elsewhere | A full-year resident files Form IT-40 and starts with the adjusted gross income from federal Form 1040, so a pension earned in another state is part of the starting figure. The resident booklet states that Indiana does not tax Social Security income or railroad retirement benefits issued by the U.S. Railroad Retirement Board, and it provides separate deductions for military retirement income and survivor benefits and for disability retirement. The source says: “Indiana does not tax Social Security income or the railroad retirement”. This rests on the Line 1 instructions, the Schedule 2 deduction instructions and the railroad retirement deduction in the 2025 IT-40 booklet. The pages read describe no general exclusion for a private or other-state pension. |
| Part-year residents (year of a move) | A part-year resident files Form IT-40PNR and lists the taxable portion of all pensions, annuities and other retirement income from the federal return in Column A. Column B takes only the portion received while the filer was an Indiana resident, and Column B is the part subject to Indiana income tax. The source says: “that portion received while you were an Indiana resident”. This rests on the Line 11 pensions and annuities instructions in the 2025 IT-40PNR booklet. |
| Rate | Indiana’s resident return multiplies the adjusted gross income figure on line 7 by 3% to get the state adjusted gross income tax for 2025. The source says: “multiply line 7 by 3% (.03)”. County income tax is a separate calculation on the county schedules and is not covered here. |
| Return to file | Full-year residents file Form IT-40. Part-year residents, and full-year nonresidents with Indiana source income other than certain interest, dividends or retirement income, file Form IT-40PNR. |
A $40,000 move-year example
A retiree receives $40,000 of pension in the year of a move: $20,000 before the move date, as an Indiana resident, and $20,000 after leaving.
The first $20,000 can be taxed by Indiana; the rest is outside its reach under the federal rule below. At the 3% rate printed for 2025, the tax on it is computed as $20,000 x 0.03 = $600, before any exclusion or credit. Federal tax still applies.
The federal rule that protects a nonresident
4 U.S.C. 114(a) bars a state income tax on retirement income of an individual “who is not a resident or domiciliary of such State”. Retirement income means any income from a qualified retirement plan, a simplified employee pension, a 403(a) or 403(b) plan, an individual retirement plan, an eligible 457 plan or a governmental plan. Income from a nonqualified deferred compensation plan counts only if it is part of a “series of substantially equal periodic payments” made for life or for a period of at least 10 years, or is a payment after termination of employment from a plan that exists only to provide benefits above the Internal Revenue Code limits, so not every payment is covered. Retired pay of a member of a uniform service is also covered.
Related: how Indiana taxes retirement income, whether Indiana taxes pensions, out-of-state pension tax by state, and deferred compensation lump sums after a move.
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Answer againSources
- 2025 IT-40 Full-Year Resident Individual Income Tax Booklet (Indiana Department of Revenue): https://forms.in.gov/Download.aspx?id=16915
- 2025 IT-40PNR Part-Year and Full-Year Nonresident Individual Income Tax Booklet (Indiana Department of Revenue): https://forms.in.gov/Download.aspx?id=16921
- 2025 Form IT-40 Full-Year Resident Individual Income Tax Return (Indiana Department of Revenue): https://forms.in.gov/Download.aspx?id=16914
- 4 U.S.C. 114, Limitation on State income taxation of certain pension income (U.S. Government Publishing Office, 2023 edition): https://www.govinfo.gov/content/pkg/USCODE-2023-title4/html/USCODE-2023-title4-chap4-sec114.htm
Sources: the primary documents linked above, read on October 7, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.