- PSERS pensions are subject to federal income tax but not Pennsylvania state or local income tax. PSERS won't withhold state tax; if you live in another state, check that state's rules.Handbook p. 8; Let's Talk About Taxes (Oct. 2024), p. 2
- Money you already paid tax on (contributions before 1983, and service purchases with after-tax money) isn't taxed again: pre-1987 amounts can be taken tax-free at retirement, and the rest is spread over your payments.Let's Talk About Taxes (Oct. 2024), pp. 2-3; PSERS web page Taxes On Benefit
The details
PSERS monthly benefits are subject to federal income tax but exempt from Pennsylvania state and local income tax. PSERS will not withhold state or local tax. If you live outside Pennsylvania, check that state's rules. Refunds and DC distributions are also exempt from PA state and local tax for PA residents. Pre-87 Investment in Contract can be withdrawn tax-free at the first payment; other after-tax money is recovered over your lifetime with the IRS Simplified Method. Premium Assistance is not taxable income. Handbook p. 8, Taxes on Your Retirement Benefit; Let's Talk About Taxes (Oct. 2024), pp. 1-3; PSERS web page Taxes On Benefit (fetched 2026-11-11); Retired Member Handbook (3/2014), p. 15
Lump sums and refunds
A lump sum paid to you has 20% federal tax withheld, and a 10% early-distribution tax may apply if you are under 55 in the year you leave. Rolling it directly into an eligible plan avoids both at the time of transfer. Exit Counseling 2025-2026, PDF pp. 15-16 How a withdrawal lowers your monthly check is in payment options.
A refund of DB contributions and interest is your only option if you terminate from all school service and are not vested. Apply with PSRS-59. Multiple service members must apply separately to SERS and PSERS. 20% mandatory federal withholding on taxable refund; refunds are not subject to PA state or local tax for PA residents. Handbook p. 20, Refunding Your DB Contributions and Interest; Let's Talk About Taxes (Oct. 2024), p. 1, Refunds See leaving teaching.
When you must start
Vested members who leave may defer (vest); the DB account keeps earning 4% interest compounded annually until refund or retirement. Benefits do not start automatically; IRS rules require distributions to begin by April 1 after the year you reach age 70 1/2 (handbook wording; the tax pamphlet refers to a Required Beginning Age by birth date). Handbook p. 20, Deferring Your Retirement Benefit; Let's Talk About Taxes (Oct. 2024), glossary 'Required Beginning Age'
Questions
Is my PSERS pension taxed in Pennsylvania?
No. PSERS monthly benefits are exempt from Pennsylvania state and local income tax, and PSERS won't withhold state or local tax. They are subject to federal income tax.
What if I move out of Pennsylvania?
Your new state's rules decide whether it taxes your PSERS pension. Check with that state.
Is a lump-sum withdrawal taxed?
A lump sum paid to you has 20% federal tax withheld, and a 10% early-distribution tax may apply if you are under 55 in the year you leave. Rolling it directly into an eligible plan avoids both at the time of transfer.
Related: Premium Assistance is not taxable income.
Source: PSERS Active Member Handbook, Current pa.gov edition (PDF revised Sept. 2023), pp. 8, 20. Also: Let's Talk About Taxes (Oct. 2024), pp. 1-3. Also: PSERS web page Taxes On Benefit. Also: Retired Member Handbook (3/2014), p. 15. Also: Retirement Exit Counseling 2025-2026, PDF pp. 15-16. Last reviewed .