Which States Tax Military Retirement?
For many military personnel, retirement is a significant milestone that comes with a guaranteed pension, known as Military Retirement Pay. However, this retirement pay is taxable in many states, which can significantly impact the amount of money military retirees receive each month. In this article, we will explore which states tax military retirement pay and how it affects retired military personnel.
What Is Military Retirement Pay?
Military Retirement Pay is a monthly pension paid to military personnel who have served at least 20 years of active duty. The pension is based on the person’s pay grade, rank, and years of service. For example, a captain with 20 years of service would receive a higher pension than a sergeant with 10 years of service.
Do States Tax Military Retirement Pay?
The answer to this question is not straightforward. While some states do tax military retirement pay, others do not. It all depends on the state’s tax laws.
States That Do Not Tax Military Retirement Pay
Here is a list of states that do not tax military retirement pay:
| State | Notes |
|---|---|
| Alaska | Does not tax military retirement pay due to its constitutional provisions. |
| Colorado | Does not tax military retirement pay, as per a 2012 constitutional amendment. |
| Florida | Exempts military retirement pay from state income tax, effective 2018. |
| Hawaii | Does not tax military retirement pay, but taxes interest earned on pension payments. |
| Idaho | Exempts military retirement pay from state income tax. |
| Indiana | Does not tax military retirement pay, as per a 2018 bill. |
| Kansai | Does not tax military retirement pay, as per a 2017 bill. |
| Louisiana | Exempts military retirement pay from state income tax, effective 2020. |
| Michigan | Does not tax military retirement pay, as per a 2020 bill. |
| Mississippi | Does not tax military retirement pay, as per a 2019 bill. |
| Missouri | Exempts military retirement pay from state income tax. |
| Nevada | Does not tax military retirement pay, as per state law. |
| New Hampshire | Exempts military retirement pay from state income tax. |
| North Dakota | Does not tax military retirement pay, as per state law. |
| Oklahoma | Exempts military retirement pay from state income tax. |
| South Carolina | Exempts military retirement pay from state income tax, effective 2015. |
| South Dakota | Does not tax military retirement pay, as per state law. |
| Tennessee | Does not tax military retirement pay, as per state law. |
| Texas | Exempts military retirement pay from state income tax, effective 2019. |
| Washington | Does not tax military retirement pay, as per state law. |
| West Virginia | Exempts military retirement pay from state income tax. |
| Wyoming | Does not tax military retirement pay, as per state law. |
States That Do Tax Military Retirement Pay
Here is a list of states that do tax military retirement pay:
| State | Notes |
|---|---|
| Alabama | Taxes military retirement pay as ordinary income. |
| Arkansas | Taxes military retirement pay as ordinary income. |
| Connecticut | Taxes military retirement pay as ordinary income. |
| Georgia | Taxes military retirement pay as ordinary income, but allows a $12,000 exemption. |
| Illinois | Taxes military retirement pay as ordinary income. |
| Kentucky | Taxes military retirement pay as ordinary income. |
| Maine | Taxes military retirement pay as ordinary income, but allows a $2,000 exemption. |
| Maryland | Taxes military retirement pay as ordinary income, but allows a $10,000 exemption. |
| Massachusetts | Taxes military retirement pay as ordinary income, but allows a $15,000 exemption. |
| Minnesota | Taxes military retirement pay as ordinary income, but allows a $4,550 exemption. |
| Montana | Taxes military retirement pay as ordinary income. |
| Nebraska | Taxes military retirement pay as ordinary income. |
| New Jersey | Taxes military retirement pay as ordinary income, but allows a $100,000 exemption. |
| New York | Taxes military retirement pay as ordinary income, but allows a $20,000 exemption. |
| North Carolina | Taxes military retirement pay as ordinary income. |
| Ohio | Taxes military retirement pay as ordinary income, but allows a $10,000 exemption. |
| Oregon | Taxes military retirement pay as ordinary income, but allows a $5,000 exemption. |
| Pennsylvania | Taxes military retirement pay as ordinary income. |
| Rhode Island | Taxes military retirement pay as ordinary income, but allows a $3,000 exemption. |
| Virginia | Taxes military retirement pay as ordinary income, but allows a $10,000 exemption. |
| Wisconsin | Taxes military retirement pay as ordinary income, but allows a $2,250 exemption. |
Key Takeaways
- A total of 30 states do not tax military retirement pay, while 21 states do tax it.
- States that do tax military retirement pay may exempt a portion of the payment or allow a deduction from state income tax.
- Retired military personnel who live in states that do not tax military retirement pay may receive a higher income tax refund or a reduced tax liability.
- Those who live in states that do tax military retirement pay may need to claim a deduction on their state tax return or consult with a tax professional to minimize their tax liability.
Conclusion
Military retirement pay can be a significant source of income for retired military personnel, but it is also subject to taxation in many states. By understanding which states tax military retirement pay, military personnel can plan their finances more effectively and minimize their tax liability. Whether you’re planning for retirement or are already retired, it’s essential to stay informed about the tax laws in your state and take advantage of any available exemptions or deductions.
