Despite growing recognition of the sacrifices made by our nation’s military personnel, several states continue to tax the retirement income of retired Soldiers.
This practice can significantly impact the financial well-being of Veterans who have dedicated their lives to serving their country. In this article, we will explore the states that impose income tax on military retirement pay so that retired service members residing in or considering moving to these states can make an informed decision.
California
Despite California’s reputation as a military-friendly state, it stands out as the only U.S. state to fully tax military retirement pay. This unique taxation can significantly impact the financial well-being of retired service members residing in the Golden State.
To address this inequity, Assemblymember James C. Ramos has introduced AB 46, a bill that aims to exempt military retirement income from California state income tax for a ten-year period. If passed, this legislation would provide much-needed relief to thousands of military.
District Of Columbia (Washington DC)
While Washington, D.C., offers various benefits to service members, Veterans, and their families, it does not provide any tax relief for military retirement pay.
This means that retired soldiers residing in the District are subject to full state income taxation on their military pensions. However, it’s important to note that disability retirement pay received from the U.S. Department of Veterans Affairs is generally exempt from federal, state, and local income taxes.
Colorado
Colorado offers tax breaks for retired service members, with specific benefits depending on their age.
Individuals under 55 can claim a military retirement subtraction up to $15,000 through 2028, while those 55 and older can claim the regular pension and annuity subtraction. These tax exemptions provide significant financial relief to retired military personnel residing in Colorado.
Delaware
Delaware taxes military retirement pay but offers a limited income exclusion based on age. Individuals under 60 can exclude up to $2,000, while those 60 and older can exclude up to $12,500. It’s important to note that military disability retirement pay is exempt from state income tax in Delaware.
Additionally, the state offers a pension exclusion for other types of retirement income, including dividends, rentals, and interest, up to the same $12,500 limit.
Georgia
Georgia offers a substantial tax benefit for military retirees, with exclusions available up to $35,000 for married couples and an additional $17,500 for those with earned income exceeding $17,500. This generous treatment makes Georgia attractive to retired service members seeking to minimize their state income tax burden.
Idaho
Idaho offers a generous tax exemption for military retirees aged 65 or older or those with disabilities aged 62 or older. Married couples filing jointly can exempt up to $60,210, while single individuals can exempt up to $40,140. This tax break provides significant financial relief to retired service members residing in Idaho.
Kentucky
Kentucky offers a favorable tax environment for military retirees, allowing them to exclude up to $31,110 of their retirement income from state taxes. This exclusion can be even higher for those with service credits prior to 1998.
Additionally, Kentucky does not tax Social Security benefits or military pay received for active service, making it an attractive state for retired service members seeking to minimize their tax burden.
Maryland
Maryland offers a tax exemption for military retirement income, with the amount varying based on age. Retirees 55 and older can exclude up to $20,000, while those under 55 can exclude up to $12,500. While this exemption provides some tax relief, it’s important to note that it’s less generous than other states taxing military retirement income.
Additionally, Maryland offers a pension exclusion for retirees 65 and older or those with disabilities up to $39,500.
Montana
Montana offers a phased approach to tax exemptions for military retirement pay. New residents can exempt up to 50% of their retirement income for up to five years, with a minimum exemption of $4,640 for those with gross income below $38,660.
This law reflects Montana’s commitment to supporting its retired military population and providing them with financial relief through tax benefits.
New Mexico
New Mexico offers a generous tax exemption for military retirement income, with eligible retirees able to exclude up to $30,000 from their taxable income for the years 2024 through 2026. This tax break provides significant financial relief to retired service members residing in the state, allowing them to retain more of their hard-earned retirement benefits.
Additionally, retirees who are 100 years old or older can enjoy complete tax exemption on all of their income.
Oregon
Oregon’s taxation of military retirement pay is based on the timing of service. Veterans with service credits earned before October 1, 1991, can enjoy a full exemption from state income tax. However, those who served both before and after this date are eligible for a partial exclusion.
This means that a portion of their military retirement pay may still be subject to Oregon income tax.
Vermont
Vermont offers a modest tax exemption of $10,000 for military retirement income but only for single filers with income under $60,000 or joint filers with income under $75,000. Unfortunately, this exemption cannot be combined with other retirement income exclusions, such as Social Security or CSRS benefits.
Due to these limitations, Vermont may not be the ideal state for retired service members seeking significant tax benefits.
Virginia
Virginia has significantly increased its tax benefits for military retirees. Starting in 2024, retirees can deduct up to $30,000 of their military retirement income from their state income taxes. This deduction will further increase to $40,000 in 2025 and subsequent years. Notably, the age requirement for eligibility has been removed, making this benefit accessible to all retired service members residing in Virginia. These enhanced tax breaks provide valuable financial relief and support to retired military personnel in the state.
