Updated October 7, 2026. Quick answer: Usually no once you have retired, but the instructions leave the plan’s eligibility to your plan administrator. The PA-40 instructions list “thrift savings plans” among the eligible employer-sponsored plans and say amounts received are taxable except “Payments you receive after you qualify for retirement and retire”. Before that, the rate is “The state income tax rate for 2025 is 3.07 percent”.
Project a Thrift Savings Plan balance with the FERS agency match and the 2026 limits: TSP calculator.
Pennsylvania TSP withdrawal tax treatment at a glance
| Item | What the documents say |
|---|---|
| TSP withdrawals | Not taxed after you qualify for retirement and retire, if the plan is an eligible employer-sponsored plan |
| FERS annuity | The PA-40 instructions list the Civil Service Annuity among income not taxable for PA purposes, separate from plan distributions |
| Rate or limit printed | 3.07 percent for 2025 |
| Where it is reported | PA-40 (income classes); the instructions’ distribution rules |
| Source | Pennsylvania Department of Revenue |
What the Pennsylvania documents say
The PA-40 instructions say Pennsylvania does not tax commonly recognized retirement benefits distributed from eligible employer-sponsored plans. They list the kinds of plan that can be eligible: 401(k) plans, thrift plans and “thrift savings plans”, and say to ask your employer or plan administrator whether your plan is eligible for Pennsylvania purposes.
For distributions, the instructions say that all amounts received from an eligible plan are taxable in the year received, except in listed cases; the first is “Payments you receive after you qualify for retirement and retire”. The instructions also list “Civil Service Annuity” among income not taxable for Pennsylvania purposes.
The Department’s Personal Income Tax Guide on gross compensation names the plan in its discussion of contributions: “Federal Employee’s Thrift Savings Plan or 401(k) Plan or 403(b) plan”. Contributions you make are Pennsylvania taxable compensation even if they were not taxable for federal purposes.
The guide cites “72 P.S. §§ 7301(d), 7303(a)(1)” as the sections of the Tax Reform Code relating to compensation in general.
A worked example at $30,000 of withdrawals
An illustration, not a return: a Pennsylvania resident takes $30,000 from the TSP in 2026. After qualifying for retirement and retiring, the instructions’ exception applies and the amount is not taxed. Before that, with no exception, the whole amount would be taxable at the 2025 rate of 3.07 percent, which is, computed as $30,000 times 3.07 percent, $921, before any cost recovery for after-tax money.
If you moved to Pennsylvania or left it
The rules above are Pennsylvania’s own, for a resident. Federal law limits what a state you have left may do: “No State may impose an income tax on any retirement income” of someone who is not a resident or domiciliary of that state, as 4 U.S.C. 114(a) puts it. The statute defines retirement income by reference to plans described in the Internal Revenue Code; this page does not decide whether a particular TSP payment meets that definition. If you moved during the year, check each state’s page and return. See CMG’s TSP withdrawal options and FERS, TSP and Social Security sequencing pages for the federal side.
What changes in 2026
The documents read for Pennsylvania announce no change for 2026 that is specific to TSP withdrawals. The instructions read are for tax year 2025, the newest archived; check the state agency for the 2026 forms when they are published.
What the documents do not say
- The instructions say a plan can, but does not necessarily, qualify, and send the reader to the plan administrator; the Department’s documents read do not state that the TSP is an eligible plan in so many words. The instructions are for tax year 2025.
Common mistakes
- Assuming a withdrawal taken before you qualify for retirement and retire is covered by the retirement exception.
- Assuming contributions to the TSP are Pennsylvania tax free because they are tax free federally; the guide says they are taxable compensation.
- Assuming the answer for one state applies to another, or that the state answer changes the federal tax on the withdrawal.
Related: TSP withdrawal options, state tax on TSP withdrawals, Pennsylvania retirement taxes, how Pennsylvania taxes pensions, and how Pennsylvania taxes 401(k) and IRA withdrawals.
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Answer againSources
- PA Personal Income Tax Guide: Gross Compensation (DSM-12 08-2025): https://www.pa.gov/content/dam/copapwp-pagov/en/revenue/documents/formsandpublications/papersonalincometaxguide/documents/pitguide_grosscompensation.pdf
- 2025 Pennsylvania Personal Income Tax Return Instructions (PA-40 IN): https://www.pa.gov/content/dam/copapwp-pagov/en/revenue/documents/formsandpublications/formsforindividuals/pit/documents/2025/2025_pa-40in.pdf
- 4 U.S.C. 114, Limitation on State income taxation of certain pension income (U.S. Code, GovInfo): 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 tax professional or the state agency itself is the right place to confirm anything consequential.