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States That Won't Tax Your Military Retirement Pay

A pension exemption can make a state more attractive to military retirees

the back of a service member carrying duffel as he returns home and walks to front door

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En español | Members of the military who serve for 20 years or more can receive retirement pay for the rest of their lives. But the way this military pension is taxed can vary a lot from state to state. Some states exempt military retirement pay from state income taxes, but others tax it as regular income, which can make a big difference in your cash flow for retirement.

Adjacent states can have very different tax situations. Georgia, for example, has 13 military bases but no specific tax exemption for military retirement pay. But Alabama, which is just across the Chattahoochee River and a few miles from Fort Benning, exempts military retirement income from state taxes, and Florida has no state income tax. “The migration of Georgia military retirees has enhanced Alabama,” says Trish Hadden, public affairs officer at the Georgia Military Officers Association of America, which has been lobbying to exclude military retirement pay from Georgia's income taxes.

Several states have recently changed their tax rules for military retirement pay. North Dakota introduced a full exemption in 2019, Indiana is phasing in an exemption over four years, and Nebraska is expanding and simplifying its break starting in 2022.

A state's total tax burden matters more to retirees

It's important to know how your state taxes military retirement pay, but that is just one of many factors to consider when deciding where to retire. A state that doesn't tax military pensions may have high property taxes or sales taxes, which could end up costing you more. Or it could have high tax rates for other income, which could have a big impact on your take-home pay if you work in a civilian job after retiring from the military.

"I joined the Marines when I was 19 years old, and for more than 24 years I never paid state income tax to Illinois because they have an active-duty and retiree tax exemption for military pay,” says Patrick Beagle, a retired Marines helicopter pilot who is now a certified financial planner and principal of WealthCrest Financial Services in Springfield, Virginia.

Now that he lives in Virginia, his military retirement pay is taxable, but his property taxes are much lower than they were in Illinois. “The total tax burden would have been more in Illinois, even though they did not tax my retiree pay,” he says. “While I often discuss ‘tax-free’ states with regard to pensions and Social Security, I also emphasize that the total tax burden is more important."


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Twenty-one states exempt military retirement pay from state income taxes, and nine have no state income tax. Sixteen states have a partial exemption for military pay or retirement income (some of those exemptions are available only to retirees age 65 and older or below certain income levels or based on the years when they served in the military). And four states plus the District of Columbia tax military retirement pay as income.

Here's how each state taxes military retirement pay, based on information from Wolters Kluwer Tax & Accounting and state departments of revenue.

How States Tax Military Retirement Pay

 

Military retirement pay is not taxed in:

  • Alabama: Exempt
  • Alaska: No individual income tax
  • Arkansas: Exempt
  • Connecticut: Exempt
  • Florida: No individual income tax
  • Hawaii: Exempt
  • Illinois: Exempt
  • Iowa: Exempt
  • Kansas: Exempt
  • Louisiana: Exempt
  • Maine: Exempt
  • Massachusetts: Exempt
  • Michigan: Exempt
  • Minnesota: Exempt
  • Mississippi: Exempt
  • Missouri: Exempt
  • Nevada: No individual income tax
  • New Hampshire: No individual income tax except for dividends and interest
  • New Jersey: Exempt
  • New York: Exempt
  • North Dakota: Exempt
  • Ohio: Exempt
  • Pennsylvania: Exempt
  • South Dakota: No individual income tax
  • Tennessee: No individual income tax except for dividends and interest (Taxes on dividends and interest are being phased out and will be eliminated entirely starting Jan. 1, 2021.)
  • Texas: No individual income tax
  • Washington: No individual income tax
  • West Virginia: Exempt
  • Wisconsin: Exempt
  • Wyoming: No individual income tax

Military retirement pay is partially taxed in:

  • Arizona: Up to $3,500 is exempt
  • Colorado: Up to $24,000 of military retirement pay is exempt for retirees age 65 and older; $20,000, for those ages 55 to 64; and $7,500, for military retirees under age 55 (increasing to $10,000 in 2021 and $15,000 in 2022 and 2023).
  • Delaware: Up to $2,000 of retirement income is exempt for taxpayers under age 60; up to $12,500 is exempt for taxpayers 60 and older.
  • Georgia: There is no specific military exemption, but taxpayers ages 62 to 64 (or disabled) can exclude up to $35,000 of retirement income; those 65 and older can exclude up to $65,000.
  •  Idaho: Up to $34,332 of qualified retirement benefits (including military retirement pay) may be exempt for single filers (up to $51,498 for joint filers) who are 65 or older or who are at least 62 and disabled. The exemption may be reduced by other retirement benefits.
  •  Indiana: Up to $6,250 of military retirement income is exempt, plus 50 percent of the excess in 2020, 75 percent in 2021 and 100 percent in 2022 or later.
  •  Kentucky: All military retirement pay is exempt if you retired in 1997 or earlier. Otherwise, you can exclude up to $31,110 in pension income and then use “Kentucky Schedule P” to compute any additional exclusion above $31,110.
  •  Maryland: Up to $5,000 of military retirement income is exempt for taxpayers up to age 55, and up to $15,000 is exempt for taxpayers 55 and older.
  •  Montana: Up to $4,370 of pension and annuity income is exempt (including military retirement pay), but the amount starts to phase out if your adjusted gross income is $36,420 or higher in 2020.
  •  Nebraska: Military retirees can elect either a 40 percent exclusion of military retirement income for seven consecutive tax years or a 15 percent exclusion for all tax years beginning at age 67. (Starting in 2022, all military retirees may exclude 50 percent of their military retirement benefits.)
  • New Mexico: Taxable as income, but low-income taxpayers 65 and older may exempt up to $8,000 of income from New Mexico taxes. The exemption gradually phases out as income rises, and it disappears for single filers whose federal adjusted gross income is more than $28,500 (or for joint filers earning more than $51,000). Also, all income is exempt for taxpayers who are 100 or older.
  • North Carolina: Military retirement pay may be exempt if the taxpayer had five or more years of service as of Aug. 12, 1989.
  • Oklahoma: Up to 75 percent of military retirement income or $10,000 is exempt, whichever is greater.
  • Oregon: Military retirement pay is taxable as income for service after Oct. 1, 1991, and is exempt for service before that date. A portion may be exempt if you served both before and after that date.
  • Rhode Island: Up to $15,000 of retirement income (including military pensions) is exempt for retirees who have reached their full Social Security retirement age and whose federal adjusted gross income is less than $83,450 for single taxpayers or $104,350 for married people filing jointly.
  • South Carolina: Up to $17,500 is exempt for military retirees under age 65 who have other earned income ($3,000 otherwise). Up to $30,000 is exempt for military retirees 65 and older, regardless of other income.

Military retirement pay is taxable as income in:

  • California: Taxable as income
  • District of Columbia: Taxable as income
  • Utah: Taxable as income. Taxpayers age 65 and older may qualify for a retirement credit of up to $450, based on income.
  • Vermont: Taxable as income
  • Virginia: Taxable as income (except for Congressional Medal of Honor recipients)

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