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Tax-Free Military Retirement Pay In These States

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These States Are Tax-Free for Military Retirement Pay

Over the years many states have changed their income tax laws allowing income tax deductions for military retirement pay in whole or in part. Not all states exempt military retirement pay from income tax, some states don’t have any income tax, and a minority of states fully tax retirement pay.

How do you earn a military retirement check? Military members who serve a minimum time in service will qualify to draw military retirement pay. The minimum amount of active duty service to do so has traditionally been 20 years, but some choose to extend their enlistment or commission beyond “putting in their 20”.

Others may retire early due to the convenience of the government, military reduction in force programs, or because they are medically retired after an illness or injury renders them “unfit” for military duty. No matter how you earn your military pension, it may be subject to state taxes, but much depends on where you live.

States That Don’t Tax Military Retirement Pay

  • Alabama
  • Arizona
  • Arkansas
  • Connecticut
  • Florida
  • Hawaii
  • Idaho
  • Indiana
  • Iowa
  • Louisiana
  • Maine
  • Massachusetts
  • Michigan
  • Minnesota
  • Missouri
  • Nebraska
  • Nevada
  • New Hampshire
  • New Jersey
  • North Dakota
  • Oklahoma
  • Ohio
  • Pennsylvania
  • Rhode Island
  • South Carolina
  • South Dakota
  • Tennessee
  • Texas
  • Washington State
  • West Virginia
  • Wisconsin
  • Wyoming

States That Don’t Fully Tax Military Retirement Pay

Some states partially tax military retirement pay or offer tax breaks on it. They include the following:

Colorado: The State of Colorado offers one of two tax breaks for all or part of military retirement pay.How much depends on the taxpayer’s age but tax deductions up to $25k are possible depending on circumstances.

Delaware: The State of Delaware offers a tax break on military retirement pay up to $12,500.Georgia: The State of Georgia offers tax exemptions for military retirement pay up to $17,500.

Kansas: Military retirement pay included in a taxpayer’s federal adjusted gross income is not taxed in the State of Kansas.

Kentucky: The State of Kentucky offers a military retirement pay tax exemption of up to $31,110 when the retirement pay is reported as taxable income and included in federal adjusted gross income.

New Mexico: You may claim up to $20,000 in tax-free military retirement pay with increases in this tax break scheduled through 2026 up to $30k.

Maryland: Tax exemptions up to $15,000 for military retirement pay in the State of Maryland are possible depending on age and other factors.

Montana: The State of Montana offers tax breaks on military retirement pay up to a cap which is subject to annual revision. In 2021 the cap was just over $4k.

New Mexico: The State of New Mexico offers tax breaks on military retirement pay depending on the year and other variables.

Puerto Rico: A tax break on military retirement pay is possible between $11k and $15k is permitted depending on age and other variables.

Utah: The State of Utah offers a tax credit for military retirement pay reported on federal income taxes.

Vermont: In Vermont, taxpayers have been able to claim up to $10,000 in tax-free military retirement income. There is a caveat; this is for those with gross incomes under $50k for single taxpayers and $65K for joint tax filers.

Virginia: Military retirees may claim up to $10,000 in tax-free retirement pay, but the taxpayer must be 55 or older. The tax-free amount increases year to year in $10K increments until reaching a cap in 2025.

What to Know About State Taxes and Military Retirement Pay

The state tax issue is specifically about military retirement pay but it does NOT affect the status of VA disability benefits including the VA Pension. VA disability benefits are not subject to taxation at the state or federal level at press time.

If you have questions about how your retirement pay is affected by state taxes or you aren’t sure how your overall income tax filing process may be affected by the new legislation mentioned here, contact a tax professional or call the Internal Revenue Service.

Retroactive Tax Breaks?

It should also be pointed out that the tax law rules published here are not necessarily retroactive. Some states may permit you to retroactively claim a tax break on military retirement in a previous year, but not all.

Those filing amended tax returns for previous fiscal years may or may not have access to the 2022 state income tax exemptions listed above. You can’t claim the tax break approved in 2022 for taxes in 2021, for example, unless the state law makes a specific provision for you to do so. A tax pro can help sort this out.

If you live in one of the affected states listed above you may be able to claim your exemption for 2022, but if you want to file an amended return, ask a tax professional to help you understand how past and current tax law may affect such a filing.

We mention this because some military members file taxes without fully understanding their rights and responsibilities with certain types of military pay and benefits. An amended return may be needed to claim exemptions from previous tax years if you weren’t aware of them at the time.

The federal tax exemption on pay earned while serving in a combat zone is a good example; it’s not necessarily a surprise to those who have earned this exclusion, but in some cases, the benefit could be overlooked at tax time; an amended return could help you claim that benefit depending on current tax law. Is a similar benefit offered at the state level? If so and you didn’t claim it in previous years an amended return may be worth looking into.

States with No Income Tax

  • Alaska
  • Florida
  • Nevada
  • South Dakota
  • Texas
  • Tennessee
  • Washington
  • Wyoming

Remember, tax laws change frequently and what is permitted in the current tax season may not be permitted in following years depending on changes in the law.

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