Key Takeaways
Many states now fully exempt military retirement pay from state income taxes, either via no state income tax or specific pension exclusions.
A number of states offer partial exemptions or caps (based on age, income, or service date) rather than full relief.
California recently joined those who give partial exemptions on military retirement income.
Who Is Eligible for Military Retirement Pay?
You may be eligible for U.S. military retirement benefits if you served on active duty with one of the military branches for 20 years or more. You may also receive retirement pay if you medically retired from service. If you were a reservist, you’re eligible for retirement pay once you reach the age of 60 and have accrued 20 qualifying years of service.
In nearly all cases, your military retirement pay counts as taxable income when filing your federal tax return. When it comes to state income taxes, however, it varies depending on where you live.
The Most Retirement-Friendly States For Military Veterans
Over the past several years, many states have joined the list of those that do not tax military retirement pay.
- Alabama
- Alaska (no state income tax)
- Arizona
- Arkansas
- Connecticut
- Florida (no state income tax)
- Hawaii
- Idaho (as of 2025)
- Illinois
- Indiana
- Iowa
- Kansas
- Louisiana
- Maine
- Massachusetts
- Michigan
- Minnesota
- Mississippi
- Missouri
- Nebraska
- Nevada (no state income tax)
- New Hampshire (no state tax on earned income or pension income)
- New Jersey
- New York
- North Carolina
- North Dakota
- Ohio
- Oklahoma
- Pennsylvania
- Rhode Island (as of 2023)
- South Carolina
- South Dakota (no state income tax)
- Tennessee (no state income tax)
- Texas (no state income tax)
- Utah (tax credit that fully offsets state income taxes)
- Washington (no state income tax)
- West Virginia
- Wisconsin
- Wyoming (no state income tax)
Nine (9) of the above states have no state income tax. One state, New Hampshire (NH), does not tax earned income or pension income but does tax dividends and interest. By 2027, however, New Hampshire will no longer tax any investment income.
States That Partially Tax Military Retirement Benefits
Eleven (11) states provide some type of military retirement pay exemption.
- Colorado – Retired service members under the age of 55 may exclude $15,000 of their retirement pay from state income taxes (through 2028). Those 55 to 64 can exclude up to $20,000. Retirees 65 and older can exclude up to $24,000.
- Delaware – This state is considering a bill that would eliminate the age requirement for its military retirement pay tax exemption. Currently, those under 60 may exclude up to $12,500. If approved, the exemption will gradually increase over three years and eventually be $25,000 (1/1/2026) for all military retirees, regardless of age.
- Georgia – Starting in 2026, up to $65,000 in military retirement pay is exempt from state income taxes, regardless of the person’s age. There is also legislation in play to remove that cap and make Georgia a tax-free state for military retirement benefits moving forward.
- Kentucky – Military veterans may exclude up to $31,110 from their taxable retirement income. Those who retired before 1997 may exclude 100% of their military retirement pay.
- Maryland – Retired service members may exclude up to $12,500 from their taxable income. Those 55 or older may exclude up to $20,000. Senate Bill 346 would have made military retirement pay tax-free, regardless of age, beginning in 2026, but the bill failed to pass.
- Montana – Under Senate Bill 104, residents (as of 6/30/23) who receive military retirement income can deduct up to half (50%) for up to five consecutive years. This deduction expires in 2033.
- New Mexico – HB 252, which was signed by the governor on 3/6/24, makes the $30,000 military retirement pay exemption permanent. It was set to expire in 2026.
- Oregon – Only retirement pay earned for service before October 1, 1991, is exempt from state income taxes. All other military retirement pay is taxed normally.
- Vermont – Military pensions are 100% exempt from income taxes for people with adjusted gross incomes under $125,000. For those making less than $175,000, there’s a partial exemption.
- Virginia – Military retirees, regardless of age, can deduct $40,000 from their state taxable income.
Recently Added
- California – Governor Gavin Newsom signed new legislation on June 27, 2025, that temporarily exempts $20,000 of military retiree and survivor benefit pay from state income taxes beginning with the current tax year. If it’s not extended, the exemption will end in 2029.
It’s important to note that tax laws are constantly changing. To ensure you have the most up-to-date information, always consult with a tax professional who is familiar with the tax code in your state.