Question

Federal law prohibits (preempts) the state taxation of which of the following?
Private pension income in either the resident or nonresident state.
Railroad retirement income in either the resident or nonresident state.
Social security income reported on a resident income tax return.
State municipal bond interest from a nonresident state.

Answer 1

Answer: Railroad retirement income in either state, and Social Security income on a resident return.

Why:
- Railroad retirement benefits are protected by the Railroad Retirement Act and related federal law, which preempt state taxation of those benefits.
- Social Security benefits are protected by federal law (Social Security Act, 42 U.S.C. § 407), which prevents states from subjecting those benefits to state taxation in the ways covered by the statute.

Not preempted:
- Private pension income: states may tax private pensions (resident and in many cases nonresidents depending on sourcing rules).
- Interest on municipal bonds issued by another state: federal law does not generally preempt a state from taxing interest on out‑of‑state municipal bonds (states commonly exempt their own muni interest but may tax interest from other states).