If you retire in Missouri you may be subject to state income tax, but there are tax provisions that allow for certain exemptions or deductions that can reduce your tax burden. Changes made in 2009 include a new public pension exemption and a new deduction for social security retirement benefits and social security disability income.
Public pension exemption
If you receive a public pension that you have to include on your federal income tax return, you may be able to subtract a portion of those pension benefits on your Missouri tax return. If your Missouri adjusted gross income is less than $100,000 if you file jointly and less than $85,000 if you file as single, you can deduct the greater of $6,000 or a percentage of your pension benefits. The percentage in effect for 2010 is 65% and increases to 80% in 2011 and 100% in 2012 and after. The maximum amount each spouse can subtract is $33,703. If your Missouri adjusted gross income is more than the limit, you may qualify for a partial exemption.
Social security deduction
If you have social security benefits or social security disability income that you had to include on your federal return, you can deduct a percentage of those benefits on your Missouri return if you meet the same income requirements as for the public pension exemption. The percentage you can deduct for 2010 is 65% and increases to 80% in 2011 and 100% in 2012 and after. You must be at least 62 years old to qualify for the social security deduction. If you can claim the social security deduction and also the public pension exemption, you have to reduce your public pension exemption by the amount you claim as a social security deduction.
Tier 1 and tier II railroad retirement benefits are exempt from state income tax in Missouri. If you had to include any of these retirement benefits, or railroad retirement sick pay, disability or unemployment benefits on your federal return, you can subtract those benefits on your Missouri return.
You may be able to claim an exemption of up to $6,000 of your private pensions, depending on your total income. Private pensions include annuities, pensions, and distributions from 401(k) plans, deferred compensation plans, self-employed retirement plans and IRAs. To qualify for the exemption, your income must not be more than a certain amount based on your filing status. The limits in effect for 2009 were $25,000 for single, head of household or qualifying widow(er), $32,000 for married filing combined, and $16,000 for married filing separately. The taxable portion of your social security benefits is not taken into account for purposes of these income limitations. If your income exceeds those limits, you may qualify for a partial exemption. The amount of your exemption would be reduced by one dollar for each dollar that your income is over the limit.
Interest and dividends on government obligations
If you receive interest income from state and local municipal obligations outside Missouri, you would have to add that amount to your taxable income on your Missouri return because it was not included in your federal adjusted gross income. Interest from bonds or other obligations in Missouri would be exempt from Missouri state income tax.
If you receive interest and dividends from federal government obligations such as U.S. savings bonds, or Treasury bills or notes that you included on your federal return, you can subtract that income on your Missouri return. This includes income from mutual funds that invest in U.S. government obligations.
Individual Income Tax Changes – Missouri Department of Revenue
Missouri Form MO-1040 Instructions – Missouri Department of Revenue