Arizona Pension Government

Most pensions are funded with pretax income which means that the full amount of your pension income would be taxable when you receive the funds. Payments from private and government pensions are usually taxable at your ordinary income rate, assuming you made no after-tax contributions to the plan.

Since ASRS has two types of contributions, it could be there was some confusion regarding this? There are two portions to the ASRS contribution rate - the Retirement Pension & Health Insurance Benefit, and the Long Term Disability Income Plan. The pension plan contribution is pre-tax deduction and and the Long-Term Disability deduction is post-tax.

ASRS pensions are considered taxable by the IRS, as they are made with pre-tax contributions. Generally, pension benefit payments are considered only taxable for contributions made to ASRS after July 1, 1986, EXCLUDING any purchased service prior to retirement made with after-tax money. 

Also, Arizona does have a pension exclusion. Beginning with tax year 2021, if you received benefits, annuities, and pensions as retired or retainer pay of the uniformed services of the United States, you may subtract 100% of the amount you received. If both you and your spouse each received such income, each spouse may subtract 100% of the amount received.