Arizona allows taxpayers to claim a subtraction for certain government pension income received from U.S. Government, Arizona state, or Arizona local government retirement systems. This subtraction is reported on Form 140, Line 29a, and is limited to $2,500 per taxpayer. The subtraction reduces Arizona taxable income by excluding a portion of qualifying government pension benefits.
Eligibility and Limitations
- The $2,500 subtraction applies to qualifying federal, Arizona state, and Arizona local government pension income included in federal adjusted gross income.
- The maximum subtraction allowed is $2,500 per taxpayer.
- The subtraction cannot exceed the amount of qualifying pension income received during the tax year.
- Public retirement pensions from states other than Arizona generally do not qualify for this subtraction.
- Only pension income that qualifies under Arizona law may be claimed on Line 29a.
Reporting Requirements
- Report the subtraction on the government pension subtraction line of the applicable Arizona return (Form 140, Line 29a).
- Only the portion of pension income that qualifies under Arizona law may be subtracted from Arizona income.
- Taxpayers should maintain records supporting the source and amount of the qualifying pension income claimed.
Additional Considerations
- Married taxpayers filing jointly may each claim up to $2,500 of qualifying pension income received in their own name.
- Social Security benefits and Railroad Retirement Board benefits are subject to separate Arizona subtraction provisions and are not limited by the $2,500 government pension subtraction.
- Uniformed services retirement pay receives more favorable treatment — it qualifies for a 100% subtraction under Arizona law.
- Taxpayers should review the Form 140 Instructions to determine whether other Arizona retirement income subtractions or exclusions may apply.
Source:
Form 140 (Arizona Individual Income Tax Return)
Disclaimer: Always verify details with the official Federal or State Department of Revenue Forms and Instructions. For complex situations, consult a CPA or tax attorney.