Delaware does tax retirement income, but selectively. Social Security and Railroad Retirement benefits are fully exempt, and residents 60 and older can exclude another $12,500 per person of pension and other eligible retirement income before Delaware applies its progressive income tax. Anything left over is taxed at rates ranging from 0% on the first $2,000 up to 6.95% on taxable income above $250,000 for 2026.
What Delaware Doesn’t Tax at All
Social Security benefits are completely excluded from Delaware taxable income regardless of how much you earn. Social Security Disability Insurance follows the same treatment.1Delaware Division of Revenue. Personal Income Tax FAQs
Railroad Retirement benefits are also fully exempt and should not be included in your Delaware taxable income. Because they’re excluded outright, they don’t count against the $12,500 retirement income exclusion. A railroad retiree with a 401(k) can exclude the railroad benefits in full and still claim the pension exclusion on the 401(k).1Delaware Division of Revenue. Personal Income Tax FAQs
Qualified Roth IRA withdrawals also escape Delaware tax, because Delaware starts its calculation from federal adjusted gross income and Roth distributions aren’t in federal AGI to begin with. They pass through tax-free without using any of your $12,500 exclusion.
The $12,500 Pension and Retirement Income Exclusion
The main tax break for Delaware retirees is the pension exclusion. If you are 60 or older, you can subtract up to $12,500 of pension and eligible retirement income from your federal AGI before Delaware calculates your tax. Married couples filing jointly can each claim a separate $12,500 exclusion, for a household maximum of $25,000.1Delaware Division of Revenue. Personal Income Tax FAQs
The exclusion is broad. It covers employer pensions, traditional IRA distributions, withdrawals from 401(k), 403(b), and 457 plans, Keogh distributions, dividends, interest, capital gains, and net rental income from real property. The combined total across all these sources cannot exceed $12,500 per person; anything above that flows through to your Delaware taxable income.1Delaware Division of Revenue. Personal Income Tax FAQs
A 67-year-old drawing $40,000 a year from a 401(k) would subtract $12,500, leaving $27,500 subject to Delaware tax before standard and senior deductions further reduce the bill.
The exclusion is not limited to income from Delaware employers. Federal civil service pensions, state and local government pensions from other states, and private-sector pensions all qualify, which matters for retirees who spent their careers elsewhere and moved to Delaware.2State of Delaware Department of Finance. The Policy Implications of Delaware’s Tax Treatment of Retirement Income
Under Age 60
If you are younger than 60, the exclusion drops to $2,000 per year, and it only covers actual pension income from employers or government sources. Dividends, interest, capital gains, and IRA distributions do not qualify for the under-60 exclusion.3State of Delaware. Delaware Tax Preference Report – Personal Income Tax
Military Retirees Get a Separate Exclusion
Military pension recipients can exclude up to $12,500 for 2026, regardless of age. That matches the general exclusion for those 60 and older, and it’s far more valuable for military retirees under 60, who would otherwise be capped at $2,000.4Justia. Delaware Code Title 30 Chapter 11 Subchapter II Section 1106 – Modifications
Delaware is phasing this exclusion upward. By 2029, the military pension exclusion reaches $25,000 per person.5Delaware General Assembly. Senate Bill 219 – Relating to Personal Income Tax The military exclusion works separately from the general pension exclusion. A veteran aged 60 or older with both a military pension and a 401(k) uses the military exclusion on the pension and applies the standard $12,500 exclusion to the 401(k) distributions.
Delaware’s 2026 Income Tax Rates
Retirement income that exceeds your exclusions is taxed at Delaware’s progressive rates. For taxable years beginning after December 31, 2025, the brackets are:6Delaware General Assembly. House Bill 13 – Relating to Personal Income Tax
- 0% on the first $2,000 of taxable income
- 2.0% from $2,001 to $5,000
- 4.0% from $5,001 to $20,000
- 5.5% from $20,001 to $60,000
- 6.6% from $60,001 to $125,000
- 6.75% from $125,001 to $250,000
- 6.95% on taxable income above $250,000
The new 6.95% top rate only reaches retirees with taxable income above $250,000 after all exclusions and deductions. For most retirees the effective top rate is 6.6% or lower. Delaware imposes no local or municipal income taxes, so the state rate is the only income tax on the check.6Delaware General Assembly. House Bill 13 – Relating to Personal Income Tax
Deductions and Credits That Stack With the Exclusion
Delaware’s 2026 standard deduction is $3,250 for single filers and $6,500 for married couples filing jointly. Residents 65 or older, or blind, can claim an additional $2,500 standard deduction per qualifying person.7State of Delaware Division of Revenue. Declaration of Estimated Income Tax for Individuals 2026 Instructions
The state also allows a personal credit of $110 per exemption, plus a separate $110 credit for each filer aged 60 or older. Individually modest, these amounts stack with the pension exclusion and additional senior deduction to meaningfully reduce a senior household’s tax bill.7State of Delaware Division of Revenue. Declaration of Estimated Income Tax for Individuals 2026 Instructions
If You Moved to Delaware Partway Through the Year
Part-year residents get a prorated exclusion. You calculate the ratio of retirement income received while a Delaware resident to your total retirement income for the year, then multiply that ratio by the applicable exclusion.8State of Delaware Division of Revenue. Individual Income Tax Return Non-Resident Instructions
Someone who moved in June and collected 55% of their annual pension while living in Delaware would get roughly 55% of $12,500, about $6,875. Part-year residents file Form PIT-NON and report all income received during the residency period plus any Delaware-source income from the non-resident period.
Estimated Tax Payments for Retirees
Retirement income often arrives without withholding, which creates an estimated payment obligation. Delaware requires quarterly estimated payments whenever your expected tax liability after withholding exceeds $800 for the year. Payments are due April 30, June 15, September 15, and January 15 of the following year.7State of Delaware Division of Revenue. Declaration of Estimated Income Tax for Individuals 2026 Instructions
If taxable retirement income begins mid-year, the first payment is due on the next quarterly date after the income starts. Retirees living off IRA or 401(k) distributions without withholding should set this up early to avoid underpayment penalties.