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State Retirement Income Tax

Tax time

Some States exempt all or a portion of retired pay from income taxation. In all States, disability payments received from VA and all Social Security payments are exempt from taxation.

State income tax, where applicable, is not withheld from retired pay unless a state has entered into an agreement with the Department of Defense to permit finance centers to withhold state income tax. Retirees who do not currently have state tax withheld from retired pay may request it from DFAS by a letter over their signature and social security number. The letter must state the amount of tax to be withheld and the state to which it will be paid.

You can contact DFAS at:

Defense Finance and Accounting Service
US Military Retirement Pay
8899 E 56 St
Indianapolis, IN London, KY 46249-1200

Toll Free: 800-321-1080

States Without Personal Income Tax

Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming do not have a personal income tax. Two others, New Hampshire and Tennessee, tax only dividend and interest income.

States Which Do Not Tax Military Retirement Pay

The following states do not tax retired military pay.

Alabama Arkansas (effective 2018) Connecticut
Illinois Kansas Louisiana
Massachusetts Minnesota Mississippi
New Jersey New York Ohio
Pennsylvania Wisconsin  

 

States With Special Military Retirement Pay Exemptions

The following States have special provisions for Military or Public pensions:

Arizona1 Arkansas2 Colorado3
Delaware4 District of Columbia5 Idaho6
Indiana7 Kentucky8 Maryland9
Michigan10 Missouri11 Nebraska12
North Carolina13 Oklahoma14 Oregon15
South Carolina16 West Virginia17  

1The first $2,500 of military retirement pay is exempted.
2The first $6,000 of military retirement pay is exempted, in 2018 all military retirement is tax-free.
3Military retirees  ages 55 - 64 can exclude up to $20,000 in any one taxable year from their retirement pay, those 65 and over can exclude up to $24,000.
4Up to $2,000 of military retirement excluded for individuals under age 60; $12,500 if 60 or older.
5Up to $3,000 of military pay excluded for individuals 62 or older.
6Only if the retiree is over age 65, or over age 62 and disabled
7Servicemember or surviving spouse (if 60 on the last day of the tax year) is entitled to a deduction of up to $5,000 of military retirement or survivor benefits. If you received both military and retirement pay or survivor benefits in the same tax year, you cannot exclude more than $5,000.
8Partially exempt if retired after December 31, 1997; exempt if retired before January 1, 1998
9Military retirees are exempt from income tax on the first $5,000, with an increase to the first $10,000 (once they become over the age of 65), of their retirement income.
10Military retirement benefits in Michigan may be tax-free depending on your age, filing status, other pensions, and income from other sources.
11Married couples with Missouri adjusted gross income less than $100,000 and single individuals with Missouri adjusted gross income less than $85,000, may deduct the greater of $6,000 or 100 percent of their public retirement benefits, to the extent the amounts are included in their federal adjusted gross income.
12Special rules see our Nebraska State Benefits Page.
13Only if you had at least 5 years active duty before August 12, 1989
14The greater of 75% of your retirement pay or $10,000
15If you had military service before October 1, 1991 you may be able to deduct a portion of your retirement pay. If you didn't have military or federal service prior to October 1, 1991, your military retirement is taxed normally.
16An individual taxpayer who has military retirement income, may deduct an amount from his South Carolina taxable income equal to the amount of military retirement income that is included in his South Carolina taxable income. The deductions are phased in over five years beginning in 2016.
17First $2,000 is exempt, plus an additional exclusion total whose formula is years of military service multiplied by 2 percent, multiplied by military pension; or $20,000, whichever is less.

 

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