2021 list of all 50 states that exempt (or don’t) all or a portion of military retirement pay. The laws differ depending on which of the 50 states you live in and some state tax laws are more complex than others. Depending on the state you may pay no income tax whatsoever, or you may find your military retirement pay is exempt from taxation up to a certain dollar amount.
Quick math: 9 states don’t have a personal income tax, 3 states fully tax military retirement pay, 22 states don’t tax retirement pay and 16 tax a portion.
9 States That Don’t Tax Personal Income
The following states don’t require military members to pay state income tax on military retirement pay because there is simply no state income tax collected:
- New Hampshire (dividend and interest taxes only)
- South Dakota
- Tennessee (dividend and interest taxes only but will be phased out in 2021)
22 States That Don’t Tax Military Retirement Pay (but do have state personal income tax)
- New Jersey
- New York
- North Dakota (effective 2019)
- Utah (effective Jan. 1, 2021)
- West Virginia (effective 2018)
For these states military retirees are encouraged to go to www.dfas.mil/retiredmilitary to change their income tax withholding to zero.
3 States That Do Fully Tax Military Retirement Pay
The following states have no specific state income tax exemption for military retirement pay:
- Plus Washington D.C.
16 States With “Special Provisions” Or Other Consideration For Military Retirement Pay
- Arizona – Military retirement pay may be excluded from state taxation up to $3,500.
- Colorado – Depending on age, up to $24,000 of military retirement pay may be exempt from state taxes.
- Delaware – Taxpayers up to the age of 60 may exclude up to $2,000 of military retirement pay, military retirees aged 60 or older exclude up to $12,500.
- District of Colombia – Military retirement pay may be excluded from state taxation up to $3,000 for individuals 62 or older.
- Georgia – Georgia has a provision for any retirement income including military retirement pay. Taxpayers who are 62 or older, or permanently and totally disabled regardless of age, may be eligible for a retirement income adjustment on their Georgia tax return. Up to $35,000 ages 62-64 and $65,000 for 65 and older.
- Idaho – Up to $34,332 of qualified retirement benefits (including military retirement pay) may be exempt for single filers (up to $51,498 for joint filers) 65 or older, or disabled and age 62 or older are excluded from state taxes. Such deductions must be reduced by retirement benefits paid under the Federal Social Security Act or the Tier 1 Federal Railroad Retirement Act. The total maximum deductions vary each year.
- Indiana – Military retirees and surviving spouses may deduct $6,250 plus 25% of the amount of the benefits in excess of $6,250 in the taxable year 2019. The percentage will increase to 50% in 2020, 75% in 2021 and 100% for taxable years beginning after 2021. House Act No. 1010 was signed into law in August, 2019.
- Kentucky – All military retirement pay is exempt from state income tax for those who retired prior to 1997. For those who retired after 1997, military retirement pay is subject to state tax when the pay exceeds $31,110.
- Maryland – Military retirees don’t pay state income taxes on the first $5,000 of their retirement income. Those over age 65, or who are totally disabled, or who have a spouse who is totally disabled, receive additional state income tax breaks which may vary from year to year.
- Montana – Starts with a graduated system with income below $36,420 (single filer); Once income exceeds $36,420, 85 percent of Social Security benefits will be taxed.
- Nebraska – Retirees must choose (within two years of the retirement date) a seven-year exemption option of 40% or a lifetime exemption option of 15% starting at age 67. Beginning in 2022, only 50% of Veteran’s military retirement pay will be subject to taxation.
- New Mexico – Low-income taxpayers 65 and older may exempt up to $8,000 of income and gradually phases out at $28,500 (single filer) or $51,000 (filing jointly. All income is exempt for taxpayers who are 100 or older.
- North Carolina – Military retirement pay may not be taxed at all if it meets certain requirements including if the veteran was “vested in the retirement system” for five years as of August 12, 1989. Otherwise, tax exemptions may be applicable up to $4,000 for single returns and $8,000 for joint returns.
- Oklahoma – Military retirement pay is exempt either up to 75% or $10,000, whichever is greater, but cannot exceed federal adjusted gross income.
- Oregon – Military retirees may qualify for a “federal pension subtraction”. Those considered “special-case” Oregon residents will have their military retirement pay taxed as regular income.
- Rhode Island – Up to $15,000 of retirement income is exempt for retirees who have reached their full Social Security retirement age and whose federal AGI is less than $83,450 for single taxpayers or $104,350 for married people filing jointly.
- South Carolina – Military retirees with a minimum of 20 years of active duty may exempt up to $3,000 until age 65, after which an exemption of $10,000 applies.
Tax codes vary from state to state, and tax laws are subject to change due to a variety of factors. Always consult with a tax professional to learn the most recent updates to state tax code, especially if there are changes to your tax bracket, income status, or benefits.
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