Does Idaho Tax Military Retirement?
Idaho, like many other states, has a unique system when it comes to taxes on military retirement pay. For those who have dedicated their lives to serving in the military, understanding the tax implications of their pension is crucial. In this article, we’ll answer the question: Does Idaho tax military retirement? and provide you with a comprehensive overview of what you need to know.
Understanding Military Retirement Taxes
Military retirement pay, also known as basic eligibility (B) pay, is a type of taxable income. As a result, it is subject to income tax. However, veterans who receive military retirement pay can deduct a portion of this income from their federal tax liability.
Idaho State Tax Laws
As a resident of Idaho, you should know that your military retirement pay is indeed taxable at the state level. Idaho Law states that military retirement income is considered taxable income, subject to state income tax.
Military Spouse and Dependent Survivor Benefits
Military spouses and dependent survivors of service members who died while on active duty or as a direct result of a service-related injury may also be entitled to certain benefits. While these benefits are taxable at the federal level, Idaho does not tax them at the state level. For more information on these specific benefits, consult the National Military Family Association (NMFA) website.
Military Disability Compensation
Military disability compensation, on the other hand, is NOT taxable at either the state or federal level. These benefits are provided to those who have suffered injuries while serving in the military. The VA calculates the rate of disability compensation based on the degree of impairment suffered.
How to Exempt Military Retirement Income in Idaho
If you receive military retirement pay and you’re a resident of Idaho, you can partial exemption on a percentage of your retirement income from state income tax. Idaho Law allows you to claim an exemption on 5% of your retirement pay, which can significantly reduce your state tax liability. To claim this exemption, you’ll need to submit Form ID-40PT with your Idaho state income tax return.
Idaho State Tax Exemptions
In addition to the partial exemption on military retirement income, Idaho also has several other state tax exemptions. These include:
| Exemption Type | Amount | Description |
|---|---|---|
| Retirement Exemption | $1,501 (for 2021) | A partial exemption on retirement income |
| Blind Exemption | Any amount | An exemption from state income tax for persons who are blind |
| Age 65 or older Exemption | Any amount | An exemption from state income tax for persons age 65 or older who are Idaho residents |
| Widow(er) Exemption | Any amount | An exemption from state income tax for surviving spouses |
Additional Considerations
- Filing Status: Idaho has different filing status requirements for military personnel, which may affect your ability to claim certain exemptions and deductions. For example, military personnel may file single even if they are legally married.
- Contribution Limits: Contributions made to a Traditional IRA while serving in the military (Military Spouse and Service Member Survivor Benefits) may contribute to an adjustment of income tax liability in Idaho.
- Income Limits: Some tax credits or deductions may have income limits, which can reduce the amount of benefits or exemptions you’re eligible to receive.
Conclusion
In conclusion, while Idaho does tax military retirement income, you have the option to partially exempt 5% of your retirement income from state income tax by claiming the retirement exemption. Additionally, there are various state tax exemptions and limits that may apply to military personnel, dependents, and surviving spouses. Consulting with a tax professional or the Idaho Tax Commission can help you determine the best course of action for your specific situation.
