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These plans areexcluded from tax on your federal return, but not onyour state income tax return. Once you retire and beginto receive pension benefits, you will pay federal tax onyour retirement payments, but you will not pay PA taxon those benefits.
If you receive retirement benefits in the form of pension or annuity payments from a qualified employer retirement plan, all or some portion of the amounts you receive may be taxable. This topic does not cover the taxation of Social Security and equivalent railroad retirement benefits.For information about tax on these benefits, refer to Topic 423. The pension or annuity payments that you receive are fully taxable if you have no investment in the contract due to any of the following situations:1  You did not contribute anything or are not considered to have contributed anything for your pension or annuity.his topic does not cover the taxation of Social Security and equivalent railroad retirement benefits. For information about tax on these benefits, refer to Topic 423. The pension or annuity payments that you receive are fully taxable if you have no investment in the contract due to any of the following situations: