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Updated for Tax Year 2022 • October 18, 2022 07:25 AM OVERVIEW Taxing military retirement pay is a decision left up to the states. Find out which states don't tax military retirement and what else you should consider before moving to a state that doesn't tax your retirement pay.  Tax free military retirement payIf you're approaching retirement from the military, you'll want to start planning your finances. After transitioning to civilian life, you may receive military retirement pay in exchange for your years of service. Many states recognize this service by choosing to provide favorable tax treatment for your military retirement pay. In fact, several states don't tax military retirement at all. Learn about the states that don't tax military retirement and those that do, as well as what to consider before choosing to relocate to take advantage of these tax breaks. What is military retirement pay?If you've served on active duty in the U.S. Army, Navy, Air Force, Marine Corps, or Coast Guard for 20 years or longer or have retired earlier for medical reasons, you may qualify for U.S. Military retirement pay. Likewise, typically you can qualify for retirement pay as a reservist if you accrue 20 qualifying years of service and reach age 60. Depending on when you joined the military, you can enroll in different retirement systems. You have two main options:
If you joined on or before September 8, 1980, you may also use the 2.5% multiplier per-year-served based on your active duty base pay at the time of retirement. The system and the High-36 System cap out at a 75% maximum. Is military retirement pay taxable?When it comes to military retirement pay, in almost all cases, your pension benefits count as taxable income at the federal level. Disability compensation received from the Veterans Administration Disability Compensation program is nontaxable income and is separate from military retirement compensation. Many states choose not to include military retirement pay in state income taxes, whether it's to acknowledge your service to your country or to make that state a more attractive place for veterans to live. Some tax this income fully, and some impose a partial tax. States that don't tax military retirement payStates that don't tax military retirement pay include:
Eight states have no state income tax whatsoever:
One other state, New Hampshire, only charges state income taxes on dividends and interest income. States that tax military retirement pay fully, partially, or in a different wayMany states award partial taxation rules or no special tax benefits to military retirees' pay. These states don't have higher tax rates for these retirement benefits, but rather, include them partially or fully in your taxable income like all other income sources. The following states tax military retirement income partially, through income exemptions and exclusions:
The District of Columbia also falls into this category. These states usually limit these partial exemptions to retirees 55 or older, though many start at the traditional retirement age of 65. Be sure to look into each state individually to understand its specific tax rules related to military retirement benefits and any other types of retirement income you may expect to receive. The following states tax military retirement pay fully and offer little to no tax benefits for retirement income:
Before you decide to moveDespite many states' efforts to exempt military retirement pay from state income taxes, retirees should consider a state's total tax burden before choosing to move there. While a state might not tax your military retirement pay, you might receive other income that does get taxed or have to pay high property taxes if you own a home. Before you make a decision to relocate to any of the states that don't tax military retirement, make sure you take into account the overall tax implications you'll face. Enlisted active duty and reserve military can enjoy TurboTax Online for free In honor of our nation's military personnel, all enlisted active duty and reserve military can file free federal and state taxes with TurboTax Online using the TurboTax Military Discount. The #1 best-selling tax software, TurboTax easily handles military tax situations including:
All you need to know is yourselfAnswer simple questions about your life and TurboTax Free Edition will take care of the rest. For simple tax returns only Real tax experts on demand with TurboTax Live BasicGet unlimited advice and an expert final review. Done right, guaranteed. For simple tax returns only
The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business. How much of military retirement is taxable?The Golden State taxes 100% of a resident's income from military pensions, along with private, local, state, and other federal pensions. This applies to all military pension income received while a retiree is a California resident, regardless of where he or she was stationed while on active duty.
How do I not pay taxes on military retirement?Military pensions are fully exempt if you retired before 1997. Personnel retiring after 1997 are subject to taxation to the extent their pension exceeds $41,110. Retirees are able to exclude the first $5,000 ($15,000 if 55 and older) of their military pension benefits. Military retirement pay exempt as of 2022.
Is military retirement pay taxable if 100 disabled?Military retirement pay based on age or length of service is considered taxable income for Federal income taxes, and most state income taxes. However, military disability retirement pay and veterans' benefits, including service-connected disability pension payments, are almost always fully excluded from taxable income.
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Is military retirement pay exempt from federal income tax
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