Updated October 29, 2026. Quick answer: Partly. Form 140 line 29a lets a retiree subtract pension income from the United States Government Service Retirement and Disability Fund, and “each spouse may subtract the amount received or $2,500, whichever is less”.
What Arizona does with a FERS or CSRS annuity
| Question | What the Arizona documents say |
|---|---|
| What the source says | Arizona lets a retiree subtract pension income from the United States Government Service Retirement and Disability Fund and any other retirement system established by federal law, but only up to a $2,500 cap per person. |
| Amount or limit | Subtract the amount received or $2,500, whichever is less, reported as income on the federal return; if both spouses receive such pension income, each may subtract up to $2,500 (Form 140 line 29a). |
| State rate printed | The 2025 Form 140 instructions multiply Arizona taxable income by 2.5% to compute the tax amount. |
| Change for 2026 | No 2026 change is printed in the state documents cited here. |
In the Arizona documents’ own words
- “subtract the amount you received or $2,500, whichever” (Arizona Form 2025 Resident Personal Income Tax Return 140 (instructions))
- “any other retirement system or plan established by federal law;” (Arizona Form 2025 Resident Personal Income Tax Return 140 (instructions))
- “Public retirement pensions from states other than Arizona do not qualify” (Arizona Form 2025 Resident Personal Income Tax Return 140 (instructions))
- “in an amount totaling not more than $2,500” (A.R.S. 43-1022 Subtractions from Arizona gross income)
- “Multiply line 45 by 2.5% (.025) and enter the result.” (Arizona Form 2025 Resident Personal Income Tax Return 140 (instructions))
How this differs from other pensions in Arizona
The same $2,500 cap applies to Arizona state and local government pensions listed on line 29a, and pensions from other states do not qualify. Private pensions are not among the sources listed for this subtraction. See also Does Arizona tax pensions? and military retirement pay.
FERS, CSRS and your TSP
The state documents cited here do not address TSP withdrawals. For the Thrift Savings Plan itself, see state tax on TSP withdrawals and the TSP calculator.
What the Arizona documents leave open
The instructions print no age test or income limit for line 29a and do not address TSP withdrawals. They do not say how private pensions are treated beyond leaving them off this subtraction. No 2026 booklet exists yet.
Common mistakes
- Expecting an exemption like Arizona’s military retirement exemption. The federal civil service subtraction is capped.
- Counting a pension from another state’s retirement system. The instructions say pensions from states other than Arizona do not qualify.
Related: Does Arizona tax pensions?, Arizona military retirement pay, and FERS, TSP and Social Security sequencing.
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Answer againSources
- Arizona Form 2025 Resident Personal Income Tax Return 140 (instructions): https://azdor.gov/sites/default/files/document/FORMS_INDIVIDUAL_2025_140i.pdf
- A.R.S. 43-1022 Subtractions from Arizona gross income: https://www.azleg.gov/ars/43/01022.htm
Read from the state documents linked above on October 29, 2026. General information, not tax advice.