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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

spinner image the back of a service member carrying duffel as he returns home and walks to front door
DigitalVision / Getty Images

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. Most states that levy income taxes exempt military retirement pay from the calculation, but others tax it to varying degrees, which can make a big difference in your cash flow for retirement.

Adjacent states can have very different tax situations. Georgia, for example, has a partial tax exemption for military retirement pay. But Alabama, just across the Chattahoochee River from Fort Moore (formerly Fort Benning), fully exempts military retirement income from state taxes, and Florida has no state income tax.

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“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 income taxes. 

Several states have recently changed their tax rules for military retirement pay. Indiana, Nebraska, Oklahoma and South Carolina stopped taxing military pensions in the 2022 tax year. Virginia introduced a partial exemption that will expand over the next few years, and Delaware, Maryland and New Mexico have expanded existing exemptions. 

This follows the trend in many states of using budget surpluses built on federal aid and economic growth during the pandemic to cut taxes. “States had a lot of money, veterans are popular, and because there aren’t that many of them, it’s not an expensive change,” says Richard Auxier, a senior policy associate with the Tax Policy Center. 

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, Beagle’s military retirement pay is partially taxable — Virginia is phasing in an exemption over the next several years for military retirees who are 55 and older — but his property taxes are much lower than they were in Illinois. 

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“The exemption on retired pay in Virginia is not as high as Illinois, but the total tax burden would still be more in Illinois,” 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.”

Twenty-nine states exempt military retirement pay from state income taxes, and nine have no state income tax. Eleven states have a partial exemption for military pay or retirement income (some of those exemptions have eligibility rules based on age, income level or period of military service). California and the District of Columbia fully tax military retirement pay as income.

Here’s how each state taxes military retirement pay, based on information from Wolters Kluwer Tax & Accounting, the Military Officers Association of America and state departments of revenue.

How States Tax Military Retirement Pay

spinner image united states map showing the states where military retirement pay is taxable as income those states are california and washington dc. military pay is partially taxed in several other states.

Military retirement pay is not taxed in:

  • Alabama: Exempt
  • Alaska: No individual income tax
  • Arizona: Exempt
  • Arkansas: Exempt
  • Connecticut: Exempt
  • Florida: No individual income tax
  • Hawaii: Exempt
  • Illinois: Exempt
  • Indiana: Exempt
  • Iowa: Exempt
  • Kansas: Exempt
  • Louisiana: Exempt
  • Maine: Exempt
  • Massachusetts: Exempt
  • Michigan: Exempt
  • Minnesota: Exempt
  • Mississippi: Exempt
  • Missouri: Exempt
  • Nebraska: Exempt
  • Nevada: No individual income tax
  • New Hampshire: No individual income tax except for on dividends and interest
  • New Jersey: Exempt
  • New York: Exempt
  • North Carolina: Exempt for veterans who served at least 20 years or were medically retired
  • North Dakota: Exempt
  • Ohio: Exempt
  • Oklahoma: Exempt
  • Pennsylvania: Exempt
  • Rhode Island: Exempt (as of 2023 tax year)
  • South Carolina: Exempt
  • South Dakota: No individual income tax
  • Tennessee: No individual income tax 
  • Texas: No individual income tax
  • Utah: Exempt
  • Washington: No individual income tax
  • West Virginia: Exempt
  • Wisconsin: Exempt
  • Wyoming: No individual income tax

Military retirement pay is partially taxed in:

  • Colorado: Up to $24,000 of federally taxable retirement income (including military retirement pay) is exempt for Coloradans age 65 and older, and up to $20,000 for those ages 55 to 64. Veterans under age 55 can deduct up to $15,000 in military retirement pay. 
  • Delaware: Up to $12,500 of military pension income is exempt for Delaware taxpayers of all ages.
  • Georgia: Veterans under age 62 can exclude up to $17,500 in military retirement pay (up to $35,000 if they also earned at least $17,500 from work). Taxpayers ages 62 to 64 can exclude up to $35,000 of overall retirement income; those 65 and older can exclude up to $65,000. 
  • Idaho: Up to $43,524 of qualified retirement benefits (including military retirement pay) may be exempt for single filers and up to $65,286 for joint filers. You must be 65 or older (62 if you have a disability). The exemption may be reduced by other retirement benefits. 
  • Kentucky: All Kentuckians can exclude up to $31,110 in pension and retirement income from their state taxes. Former service members who receive more than that in military retirement pay may be able to exclude more. Veterans who retired before Jan. 1, 1998, can exempt all military retirement pay. Those who have retired since that date will need to use Kentucky Schedule P to compute their exclusion above $31,110.
  • Maryland: Starting in the 2023 tax year, up to $12,500 of military retirement income is exempt for taxpayers up to age 55, and up to $20,000 is exempt for taxpayers 55 and older.
  • Montana: Currently, Montana exempts a portion of retirement income (which includes military pensions) for residents under certain income limits. Starting with the 2024 tax year, some Montana residents will be able to exempt up to 50 percent of their military retirement income from state taxes.
  • New Mexico: Up to $20,000 in military retirement pay is exempt for 2023, and up to $30,000 for 2024, 2025 and 2026. All income is exempt for taxpayers who are 100 or older. 
  • 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. 
  • Vermont: Up to $10,000 of military retirement pay is exempt for veterans with an income of up to $50,000 for a single filer or $65,000 for a married couple filing jointly.
  • Virginia: Retirees age 55 and over can deduct up to $20,000 in military benefits from their 2023 state income taxes. The deduction increases to $30,000 for the 2024 tax year and to $40,000 for 2025 and beyond.

Military retirement pay is taxable as income in:

  • California: Taxable as income
  • District of Columbia: Taxable as income

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