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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
P.O. Box 7130
London, KY 40742-7130

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 With Special Military Retirement Pay Exemptions

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

Alabama Arizona1 Arkansas2
Colorado3 Connecticut Idaho4
Iowa Kansas Louisiana
Maryland5 Missouri Nebraska6
New Jersey North Carolina7 Ohio
Oklahoma8 South Carolina9 Wisconsin

1The first $2,500 of military retirement pay is exempted.
2The first $6,000 of military retirement pay is exempted.
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.
4Only if the retiree is over age 65, or over age 62 and disabled
5The First $5,000 of military retirement pay is exempted, totally disabled retirees and those over 65 receive additional exemptions.
6Special rules see our Nebraska State Benefits Page.
7Only if you had at least 5 years active duty before August 12, 1989
8The greater of 75% of your retirement pay or $10,000
9Currently $3,000/year is exempt until age 65, then $15,000/year is exempt, these amounts will increase by $2,900/year for under 65 and $3,000/year for over 65 until 2020 when the exemptions will be $17,500/year for under 65 and $30,000/year for over 65.

Related Topics

Military Taxes

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