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State Retirement Income Tax

Tax time

Some States exempt all or a portion of retired pay from income taxation. Some States exempt disability retired pay in the same manner as the Federal Government. In all States, disability payments received from VA and all Social Security payments are exempt from taxation. Few States, if any, permit a retirement income credit of the type granted by the Federal Government.

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 Hawaii Illinois
Kansas Kentucky*** Louisiana
Massachusetts Michigan* Mississippi
Missouri++ New Jersey New York
North Carolina+ Ohio Pennsylvania

* = Exempts USPHS and NOAA retired pay as federal employment.
*** = Exempt depending on date of retirement - prior to 1998; after this date, some may be exempt.
+ NC allows full exemption for retirees with five years of service as of August 12, 1989; 
++Missouri has a Public Pension Exclusion which covers a portion of pension income.

States With Disability Retired Pay Exemptions

All Other Military Retired Pay Taxable:

Arizona* Arkansas* California*
Colorado Connecticut Delaware*
DC** Georgia* Idaho*
Indiana* Iowa*** Maine*
Maryland* Michigan Minnesota
Montana Nebraska Missouri
New Mexico North Dakota Ohio*
Oklahoma** Oregon++ Puerto Rico
Rhode Island Utah**** Vermont
Virginia* West Virginia South Carolina**

* Does not tax Social Security or railroad retirement benefits.
** Does not tax Social Security benefits.
*** Does not tax Railroad Retirement Benefits
**** Does not tax Railroad Retirement Benefits; however, Social Security Benefits may be taxed
++ Possible exemption on all Federal pensions

Related Topics

Military Taxes

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