Does Oregon Tax Pensions and Social Security?

Oregon does tax pensions, but it does not tax Social Security. Distributions from pensions, 401(k) plans, 403(b) plans, traditional IRAs, and annuities all flow through your federal taxable income onto your Oregon return as ordinary income, where they face rates that reach 9.9%.¹ Social Security benefits are fully exempt no matter how much other income you have.² A handful of credits and subtractions can trim the bill for some retirees, but Oregon offers no broad exemption for retirement income.

Retirement Income Oregon Taxes

Oregon rule requires residents to include all retirement benefit plan distributions in state taxable income.¹ That means the following are taxable on your Oregon return:

Private pensions from employer-sponsored defined-benefit plans.
Withdrawals from 401(k) and 403(b) accounts.
Distributions from traditional IRAs, including the taxable portion of a Roth conversion in the year you convert.
Annuity payments, to the extent they exceed your cost basis.
Federal civil service and other federal government pensions, subject to a partial subtraction for pre-October 1991 service.
Oregon PERS benefits, though certain Tier One members receive a supplemental “tax remedy” payment that offsets part of the tax.
Military retirement pay, under current law.

Retirement Income Oregon Does Not Tax

Social Security and Railroad Retirement

Any Social Security benefits that show up in your federal adjusted gross income are subtracted on the Oregon return, so your Oregon tax on those benefits is zero regardless of total income.² This covers both retirement and survivor benefits. Tier 1 Railroad Retirement Board benefits get the same treatment.

Qualified Roth Distributions

Because Oregon starts from federal taxable income, qualified Roth IRA and Roth 401(k) distributions escape Oregon tax the same way they escape federal tax. A distribution is qualified when the Roth account has been open for at least five years and you are 59½ or older, or you meet another qualifying event such as disability. Early withdrawals of Roth earnings that are federally taxable will also be taxable in Oregon.

Oregon’s Income Tax Rates on Pension Income

Oregon runs a progressive income tax with four main brackets. For the 2026 tax year, a single filer pays 4.75% on the first $3,750 of taxable income, 6.75% from $3,750 to $9,375, 8.75% from $9,375 to $125,000, and 9.9% above $125,000. Married couples filing jointly reach those same rates at roughly double the thresholds, hitting 9.9% above $250,000.³ Oregon has no sales tax, but a retiree living on taxable pension and 401(k) withdrawals should expect most of that income above roughly $10,000 to land in the 8.75% bracket.

Retirement Income Credit

Oregon’s retirement income credit under ORS 316.157 is worth 9% of your “net pension income,” capped at your total tax liability for the year.⁴ You must be at least 62 by the end of the tax year and receiving pension income to qualify.

The credit phases out based on household income and Social Security benefits. For a single filer, net pension income is the lesser of your actual pension income or $7,500, reduced by your Social Security benefits and any household income above $15,000. Joint filers use $15,000 and a $30,000 household income threshold.³ The credit disappears entirely once household income (excluding Social Security) reaches $22,500 for single filers or $45,000 for joint filers, and it disappears sooner if Social Security is in the picture. Middle- and upper-income retirees get nothing from this credit.

“Pension income” here is broad. It includes distributions from employer pension plans, 401(k) and similar defined-contribution plans, IRAs, and deferred compensation plans. The credit is claimed on Schedule OR-ASC filed with Form OR-40.

Federal Pension Subtraction for Pre-1991 Service

Federal civilian retirees whose careers span October 1, 1991, can subtract part of their federal pension from Oregon taxable income. The subtraction equals the pension for the year multiplied by the ratio of pre-October 1991 service months to total creditable service months.³ Twenty years of federal service with ten of those years before October 1991 would produce a 50% subtraction.

The break exists because Oregon did not tax public employee pensions before 1991 and grandfathered benefits earned during that tax-free period when it started taxing them. Claim the subtraction on Schedule OR-ASC.

Oregon PERS Tax Remedy

PERS Tier One members hired before July 14, 1995, may receive a “tax remedy” payment added to their monthly benefit, worth up to 9.89% of the benefit.⁵ You need at least 10 years of creditable service, though that requirement is waived if you were hired before October 1, 1991.

The remedy is not something you claim on a return. PERS adds it to your check automatically. You must be an Oregon resident to receive it, and you have to certify residency with PERS by December 15 each year for the payment to appear the following year.⁵ Move out of Oregon and you lose the remedy, but you also stop owing Oregon tax on your PERS benefits.

Medical Expense Subtraction for Seniors

Retirees age 66 or older can subtract unreimbursed medical expenses under ORS 316.693 without meeting the federal floor for itemized medical deductions.⁶ The cap is $1,800 per qualifying person, or $3,600 on a joint return where both spouses are 66 or older.

The subtraction phases down at higher incomes. Federal AGI between $50,000 and $100,000 joint (or $25,000 to $50,000 for other filers) drops the cap to $1,400 per person. Between $100,000 and $200,000 joint (or $50,000 to $100,000 other), it drops to $1,000 per person. Above $200,000 joint or $100,000 other, no subtraction is available.⁶

Extra Standard Deduction at 65

Oregon taxpayers who reach 65 by the end of the tax year get an additional standard deduction. For 2025 returns filed in 2026, the extra amount is $1,200 for single or head-of-household filers and $1,000 per qualifying spouse on a joint return, so a couple where both spouses are 65 or older gets $2,000 in additional deductions.⁷ Taxpayers who are both 65 or older and legally blind receive the additional amount twice. No special form is required; you claim the higher standard deduction on your OR-40.

Military Retirement Pay

Military retirement pay is currently taxed like any other pension in Oregon. The pre-1991 federal pension subtraction can apply to service before October 1, 1991, but most current military retirees entered service after that date and see no benefit.

HB 2050, introduced in the 2025 legislative session, would exempt federal military retirement pay from Oregon income tax starting with the 2026 tax year.⁸ As drafted, the exemption would apply only to disabled veterans and members of reserve components or the National Guard, and a later amendment would extend it to surviving spouses of veterans.⁹ As of mid-2025, the bill remains in committee and is not law. Check its status before counting on the exemption.

Moving Into or Out of Oregon

Federal law bars states from taxing retirement income received by people who are neither residents nor domiciled there.¹⁰ If you spent your career in Oregon, retired, and moved to another state with the genuine intent to make it your permanent home, Oregon can no longer tax your pension. What matters is actually changing your domicile, not just spending winters elsewhere. Oregon treats domicile as your true, fixed, permanent home; it continues until you show intent to abandon it and actually establish residence somewhere else.

The reverse also holds. Keep Oregon as your domicile while living temporarily in another state and Oregon will still tax your retirement income.¹⁰ Part-year residents file Form OR-40-P and allocate retirement income based on the period of Oregon residency.

Paying the Tax During Retirement

Without an employer withholding Oregon tax from a paycheck, you are on the hook for making sure enough tax gets paid through the year. Oregon requires quarterly estimated payments if you expect to owe $1,000 or more after withholding and credits.¹¹ For calendar-year filers, payments are due April 15, June 15, September 15, and January 15 of the following year. Total payments should equal at least the lesser of 90% of the current year’s tax or 100% of the prior year’s tax to avoid underpayment interest, which runs at 8% annually for interest periods beginning on or after January 1, 2026.¹²

Many retirees skip quarterly payments by asking their pension plan or IRA custodian to withhold Oregon tax directly from distributions. Most large plan administrators and the federal Office of Personnel Management can set that up on request.¹¹

1
Legal Information Institute. Oregon Admin Code 150-316-0060 – Taxable Income of Resident
2
Oregon Department of Revenue. Publication OR-PIT-VET, Personal Income Tax Items of Interest to Oregon Veterans
3
Oregon State Legislature. Oregon Revised Statutes Chapter 316 – Personal Income Tax
4
Oregon State Legislature. Oregon Revised Statutes Section 316-157 – Credit for Retirement Income
5
State of Oregon PERS. Tax Remedy Information
6
Oregon State Legislature. Oregon Revised Statutes Section 316-693 – Subtraction for Medical Expenses of Elderly Individuals
7
Oregon Department of Revenue. 2025 Publication OR-17, Oregon Individual Income Tax Guide
8
Oregon State Legislature. HB2050 2025 Regular Session
9
Oregon State Legislature. HB 2050 Staff Measure Summary
10
Legal Information Institute. Oregon Admin Code 150-316-0183 – Gross Income of Nonresidents; Retirement Income Derived from Oregon Sources
11
Oregon Department of Revenue. Publication OR-ESTIMATE, Oregon Estimated Income Tax Instructions
12
Oregon Department of Revenue. Penalties and Interest for Personal Income Tax