Does Arkansas Tax Military Retirement?
As a proud member of the military, you’ve dedicated your career to serving your country. When you retire, you expect to enjoy the fruits of your labor without excessive taxation. However, state taxes can be a complex and daunting issue, leaving many retirees wondering: Does Arkansas tax military retirement?
The Direct Answer:
Arkansas does tax military retirement benefits. The state considers military retirement pay as taxable income, just like wages from a civilian job. However, there are some exemptions and deductions available to reduce the tax burden.
Understanding the Taxation of Military Retirement
The Military Retirement Reform Act of 2017 (MRRA) changed the way military retirement pay is taxed. Before the MRRA, military retirement pay was not taxed at the federal level, but states could still tax it. Now, 25% of military retirement pay is exempt from federal income tax, but states can still tax it.
Arkansas Tax Laws on Military Retirement
Arkansas state law follows the federal government’s lead in taxing military retirement pay. The state considers military retirement pay as taxable income, just like wages from a civilian job. This means that you’ll need to report your military retirement pay on your Arkansas state tax return (Form AR-1040).
Exemptions and Deductions
While Arkansas does tax military retirement pay, there are some exemptions and deductions available to reduce the tax burden. Here are a few key points to consider:
• Combat Pay Exemption: Arkansas does not tax combat pay, which includes pay for hazardous duty, imminent danger pay, and hostile fire pay.
• Cost-of-Living Allowance (COLA): COLA, also known as Cost of Living Allowance, is not considered taxable income in Arkansas.
• Subsistence Allowance: Subsistence allowance, which is the daily stipend for food and lodging, is also exempt from taxation in Arkansas.
• Retirement Savings Exclusion: Arkansas allows you to exclude $2,400 of retirement savings from your taxable income, which can help reduce your tax liability.
Taxation of Other Benefits
In addition to military retirement pay, other benefits may be taxable in Arkansas. These include:
• Disability Pay: Disability pay is taxable in Arkansas, just like wages from a civilian job.
• Death Gratuity: Death gratuity, which is a one-time payment made to the family of a deceased service member, is taxable in Arkansas.
• Burial Allowance: Burial allowance, which is a one-time payment made to help cover funeral expenses, is also taxable in Arkansas.
Table: Arkansas Taxation of Military Benefits
| Benefit | Taxable in Arkansas? |
|---|---|
| Military Retirement Pay | Yes |
| Combat Pay | No |
| Cost-of-Living Allowance (COLA) | No |
| Subsistence Allowance | No |
| Retirement Savings | No (up to $2,400) |
| Disability Pay | Yes |
| Death Gratuity | Yes |
| Burial Allowance | Yes |
Conclusion
While Arkansas does tax military retirement pay, there are some exemptions and deductions available to reduce the tax burden. By understanding the tax laws and taking advantage of available exclusions, you can minimize your tax liability and keep more of your hard-earned retirement pay. If you have any questions or concerns about Arkansas taxation of military retirement, it’s always a good idea to consult with a tax professional or the Arkansas Department of Finance and Administration.
