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Does Oklahoma tax military retirement?

Does Oklahoma Tax Military Retirement?

Oklahoma is one of the states that does not offer full tax exemption on military retirement pay. While many states provide partial or complete tax exemption on military retirement pay, Oklahoma has more complex rules regarding the taxation of military retirement income. In this article, we will explore the rules surrounding the taxation of military retirement in Oklahoma and what Oklahoma veterans can expect when receiving their military retirement pay.

Does Oklahoma Tax Military Retirement?

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Oklahoma does tax military retirement pay, but with certain exemptions and deductions. As a general rule, military retirement pay is taxable income in Oklahoma, just like any other income. However, some parts of the retirement pay may be exempt from state income tax.

Which Portion of Military Retirement Pay is Taxable in Oklahoma?

Oklahoma taxes 100% of military retirement pay received under the following systems:

  • Military Basic Allowance for Housing (BHA)
  • Military Family Separation Allowance
  • Bonuses, lump sums, and special payments

On the other hand, some parts of military retirement pay are exempt from Oklahoma state income tax, including:

  • Combat Pay (Oklahoma law exempts combat pay received by members of the Oklahoma National Guard)
  • Death Gratuity (payments made to the family of a deceased service member)

How Does Oklahoma Treat the Taxation of Survivor Benefits?

Oklahoma does not tax Survivor Benefit Plan (SBP) payments, which are monthly payments made to survivors of deceased service members.

How Can Oklahoma Residents Claim Exemptions or Deductions on Military Retirement Pay?

Oklahoma residents receiving military retirement pay can claim annual exemptions on a limited portion of their retirement pay. The annual exemption for 2022 is $5,000. Claiming this exemption can result in a reduction in Oklahoma state income tax liability. Additionally, military retirees in Oklahoma may be eligible for a standard deduction of $3,350 in 2022. Claiming the standard deduction can also reduce Oklahoma state income tax liability.

Can Oklahoma Residents Itemize Deductions on Military Retirement Pay?

Yes, military retirees in Oklahoma can itemize deductions if they have significant expenses exceeding the standard deduction. Eligible expenses include medical and dental expenses, charitable donations, mortgage interest, and property taxes.

Military Retirement Pay Tax Calculator for Oklahoma Residents

Here is a rough estimate of Oklahoma state income tax liability based on military retirement pay:

Military Retirement PayOklahoma State Income Tax Liability
$20,000Approximately $1,500-$2,000
$30,000Approximately $2,700-$3,900
$40,000Approximately $4,100-$5,900

Please note that these are rough estimates and individual circumstances may vary. Retirees should consult their tax professional or financial advisor to determine their actual tax liability.

Conclusion

While Oklahoma does tax military retirement pay, understanding the rules and exemptions can help retirees minimize their tax liability. By claiming annual exemptions, standard deductions, and itemizing deductions, military retirees in Oklahoma can reduce their state income tax burden. As always, it’s essential to consult a tax professional or financial advisor for personalized guidance on the taxation of military retirement pay.

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