What States Tax Military Retirement?
Military retirement is a hard-earned benefit that service members have worked towards throughout their careers. However, upon retirement, they may be surprised to find that some states tax their military retirement benefits. In this article, we will explore which states tax military retirement and how it affects service members and veterans.
What is Taxed and What is Not?
Before diving into the specifics of state taxes, it’s essential to understand what is taxed and what is not. Generally, the federal government taxes military retirement pay, but some states exempt or partially exempt military retirement benefits. The main types of benefits that are typically taxed include:
- Basic Pay: The base salary paid to service members during their active duty service.
- Retirement Pay: The monthly payment made to service members upon retirement.
- Disability Compensation: Compensation paid to service members with service-connected disabilities.
States that Do Not Tax Military Retirement
Some states have chosen to exempt military retirement benefits from state taxation. These states include:
- Alaska: Alaska has no state income tax, so military retirement benefits are exempt from state taxation.
- Florida: Florida exempts military retirement pay from state taxation.
- Nevada: Nevada does not tax military retirement benefits.
- South Dakota: South Dakota has no state income tax, and military retirement benefits are exempt from taxation.
- Texas: Texas does not tax military retirement benefits.
States that Partially Exempt Military Retirement
Some states partially exempt military retirement benefits from state taxation. These states include:
- California: California taxes military retirement pay, but allows a $10,000 exemption.
- Colorado: Colorado taxes military retirement pay, but offers a $6,000 exemption.
- Indiana: Indiana taxes military retirement pay, but offers a $2,000 exemption.
- New Hampshire: New Hampshire taxes military retirement pay, but does not tax the first $3,000.
- Wisconsin: Wisconsin taxes military retirement pay, but offers a $10,000 exemption.
States that Tax Military Retirement
Some states fully tax military retirement benefits. These states include:
- Arizona: Arizona taxes military retirement pay.
- Arkansas: Arkansas taxes military retirement pay.
- Georgia: Georgia taxes military retirement pay.
- Illinois: Illinois taxes military retirement pay.
- Kentucky: Kentucky taxes military retirement pay.
- Maryland: Maryland taxes military retirement pay.
- Michigan: Michigan taxes military retirement pay.
- Mississippi: Mississippi taxes military retirement pay.
- New Jersey: New Jersey taxes military retirement pay.
- New York: New York taxes military retirement pay.
- Oregon: Oregon taxes military retirement pay.
- Pennsylvania: Pennsylvania taxes military retirement pay.
- Virginia: Virginia taxes military retirement pay.
Tips for Military Retirees
For military retirees who are planning to move to a new state, it’s essential to consider the tax implications of their decision. Here are some tips to keep in mind:
- Consult a Tax Professional: Consult with a tax professional to understand how your military retirement benefits will be taxed in your new state.
- File Your Taxes Correctly: Make sure to file your taxes correctly and take advantage of any exemptions or deductions available to you.
- Plan Your Finances: Plan your finances carefully, taking into account the potential impact of state taxes on your military retirement benefits.
- Consider a State That Does Not Tax Military Retirement: If possible, consider moving to a state that does not tax military retirement benefits, such as Alaska, Florida, Nevada, South Dakota, or Texas.
Conclusion
Military retirement is a significant milestone in a service member’s career, and it’s essential to understand the tax implications of their decision. While some states exempt or partially exempt military retirement benefits from state taxation, others fully tax these benefits. By understanding which states tax military retirement and taking advantage of available exemptions and deductions, service members and veterans can better plan their finances and enjoy their well-deserved retirement.
