Many states have introduced new legislation to help attract and retain military veterans. In fact, several have joined the growing list of states that fully exempt military retirement pay from state income taxes. Even California, which currently offers no exemption, is hoping to join the list. Here’s a quick overview of where each state currently stands and what bills are pending.
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
- 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
- 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 – Military veterans (under 62) may exempt up to $17,500 of military retirement income, plus an additional $17,500 (total of $35.000) if they have at least that amount in earned income. Those 62 to 64 may claim a $35,000 exemption for any retirement income. Residents over the age of 65 can claim an exemption of up to $65,000 for any type of retirement income.
- Idaho – Senate Bill 1428 would have exempted military retirement benefits from state income regardless of age or disability, but it failed to pass this year. Currently, military retirement benefits are only exempt if the retired servicemember is at least age 65, or at least age 62 and classified as disabled.
- 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. The senate vowed to try again next year.
- 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. If the taxpayer was a resident before June 30, 2023, the exemption can only be claimed for tax years 2024 through 2029. This exemption is set to expire on December 31, 2029.
- 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 – Up to $10,000 in military retirement pay is tax-free. Single filers must have an AGI below $50,000 and joint filers must have an AGI below $65,000 to qualify.
- Virginia – Military retirees, regardless of age, can deduct $30,000 from their state taxable income. For 2025 and later, this increases to $40,000.
States That Fully Tax Retirement Pay for Veterans
Currently, only one state fully taxes all military retirement pay – California.
- California – State Assembly Bill 46 (AB 46), which would exempt all military retirement pay and surviving spouse benefits, was first introduced in 2022. It is currently in committee and held under submission.
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.