California bill to exempt military retirement pay

1/16

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California Tax on Military Retirement Pay

• Lowest income tax rate: 1% (on up to $20,198 of taxable income for married joint filers and up to $10,099 for single filers)
• Highest income tax rate: 13.3% (on more than $1,354,550 of taxable income for married joint filers and $1 million for single filers)

The Golden State taxes 100% of a resident's military retirement pay, along with private, local, state, and other federal pensions. This applies to all military pension income received while a retiree is a California resident, regardless of where he or she was stationed while on active duty.

The state does offer a special income tax credit if you're at least 65 years old, you qualified as a head-of-household filer for at least one of the past two years, your qualifying person died in the past two years, and your 2022 income is less than $89,931. For the 2022 tax year, the credit is worth up to $1,695.

For more information about California taxes, see the California State Tax Guide (opens in new tab).

2/16

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Colorado Tax on Military Retirement Pay

• Income tax rate: Flat tax of 4.4% (it was reduced from 4.55% to 4.4% by Proposition 121, which was approved by voters on November 8, 2022)

Veterans in Colorado might have to pay state income tax on a portion of their military pension. Veterans age 65 and older can exclude up to $24,000 of income from their military retirement pay (or from other private or government retirement plans, including from IRAs), along with Social Security benefits taxed at the federal level ($20,000 for taxpayers 55 to 64 years old). If the total Social Security benefits that were included in federal taxable income exceed the $24,000 cap, then the cap is increased to equal the Social Security benefits taxed at the federal level.

For the 2022 and 2023 tax year, veterans under age 55 can exclude up to $15,000 of income from a military retirement plan.

For more information about Colorado taxes, see the Colorado State Tax Guide (opens in new tab).

3/16

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Delaware Tax on Military Retirement Pay

• Lowest income tax rate: 2.2% (on taxable income from $2,001 to $5,000)
• Highest income tax rate: 6.6% (on more than $60,000 of taxable income)

State law allows a modest exemption of up to $12,500 for pension and other retirement income paid to taxpayers age 60 and older. The $12,500 exemption also extends to military pensions for veterans under age 60, while the exemption is only for $2,000 for other people under 60. Eligible retirement income includes dividends, capital gains, interest, net rental income from real property and qualified retirement plans (e.g., IRAs, 401(k) plans, Keogh plans, and government deferred compensation plans).

For more information about Delaware taxes, see the Delaware State Tax Guide (opens in new tab).

4/16

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District of Columbia Tax on Military Retirement Pay

• Lowest income tax rate: 4% (on up to $10,000 of taxable income)
• Highest income tax rate: 10.75% (on more than $1 million of taxable income)

Despite the large number of government workers who call it home, the District of Columbia offers no tax breaks for those who decide to retire there. A $3,000 exclusion for government pensions, including military pensions, was repealed in 2015.

For more information about District of Columbia taxes, see the District of Columbia Tax Guide (opens in new tab).

5/16

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Georgia Tax on Military Retirement Pay

• Lowest income tax rate: 1% (on up to $1,000 of taxable income for married joint filers and up to $750 for single filers)
• Highest income tax rate: 5.75% (on more than $10,000 of taxable income for married joint filers and $7,000 for single filers)

The Peach State offers a generous tax break for retirees, but some veterans could still see part of their military retirement pay subject to Georgia's income tax.

Veterans and other residents age 65 and older can exclude up to $65,000 of retirement income. The exclusion is for up to $35,000 for taxpayers age 62 to 64. Eligible retirement income includes taxable pensions and annuities (including military pensions), taxable IRA distributions, interest, dividends, net income from rental property, capital gains, royalties, and the first $4,000 ($5,000 beginning in 2024) of earned income (such as wages).

In addition, starting July 1, 2022, up to $35,000 of military retirement pay is exempt for veterans under 62 years of age.

For more information about Georgia taxes, see the Georgia State Tax Guide (opens in new tab).

6/16

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Idaho Tax on Military Retirement Pay

• Lowest income tax rate: 1% (on up to $3,176 of taxable income for married joint filers and up to $1,588 for single filers)
• Highest income tax rate: 6.5% (on more than $15,878 of taxable income for married joint filers and more than $7,939 for single filers) [Rates and thresholds are for 2021. Starting in 2022, the top rate is reduced to 6%, but taxable income thresholds for 2022 have not been released yet.]

For the 2021 tax year, veterans age 65 and older could exclude up to $37,776 of income from qualified retirement plans. Joint filers could exclude up to $56,664. The deduction is reduced by Social Security and Railroad Retirement benefits, which are also exempt from tax. In addition to military pensions, qualified retirement plans include federal government plans and retirement plans for Idaho police and firefighters.

In addition, retired vets in the Gem State can also take advantage of the higher grocery credit available to residents age 65 or older – it's increased from $100 to $120 (to $140 beginning in 2023). That's not much, but every dollar counts!

For more information about Idaho taxes, see the Idaho State Tax Guide (opens in new tab).

7/16

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Kentucky Tax on Military Retirement Pay

• Income tax rate: Flat tax of 5%

Kentucky offers a partial tax exemption for veterans with a military pension. The exemption also applies to other types of retirement income.

Thanks to the exemption, there's no Kentucky tax on up to $31,110 of income from private, government, and military retirement plans (including IRAs and 401(k) plans). However, government retirement income attributable to service credits earned before 1998 is fully exempt without limits.

For more information about Kentucky taxes, see the Kentucky State Tax Guide (opens in new tab).

8/16

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Maryland Tax on Military Retirement Pay

• Lowest income tax rate: 2% (on up to $2,000 of taxable income)
• Highest income tax rate: 5.75% (on more than $300,000 of taxable income for married joint filers and more than $250,000 for single filers)

The Old Line State offers a modest tax break for military retirement pay, but retired veterans in Maryland do have other ways to reduce their state taxable income. With regard to military pensions specifically, up to $15,000 of income from a military retirement plan is exempt for taxpayers age 55 or older ($5,000 for taxpayers under age 55).

In addition, for the 2022 tax year, Maryland taxpayers age 65 and older can exclude up to $34,300 of federally-taxed income from an employee retirement plan (e.g., a pension or 401(k) plan, but not an IRA).

In addition, starting with the 2022 tax year, single residents who are at least 65 years old with a federal adjusted gross income of $100,000 or less can claim a $1,000 tax credit. The credit amount is $1,750 for joint filers, surviving spouses, and head-of-household filers 65 or older with a federal AGI of $150,000 or less ($1,000 if only one spouse for a couple filing a joint return is eligible). The credit amount can be reduced in future years if revenue estimates are lowered by a certain amount.

Also beginning in 2022, anyone who is at least 100 years old can exclude up to $100,000 of income from tax.

For more information about Maryland taxes, see the Maryland State Tax Guide (opens in new tab).

9/16

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Montana Tax on Military Retirement Pay

• Lowest income tax rate: 1% (on up to $3,300 of taxable income)
• Highest income tax rate: 6.75% (on more than $19,800 of taxable income)

The state provides an inflation-adjusted exemption for pension income (including military retirement pay), but veterans with a robust military pension probably won't qualify. For the 2022 tax year, the maximum exemption is $4,640. However, the exemption doesn't apply for veterans with federal adjusted gross income of $40,980 or more ($43,300 or more for joint filers). If both spouses receive pension income, married couples should check to see if each spouse could exclude $4,640 if separate returns are filed.

In addition, taxpayers age 65 or older can exclude up to $800 ($1,600 for joint filers) of interest income.

For more information about Montana taxes, see the Montana State Tax Guide (opens in new tab).

10/16

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New Mexico Tax on Military Retirement Pay

• Lowest income tax rate: 1.7% (on up to $8,000 of taxable income for married joint filers and up to $5,500 for single filers)
• Highest income tax rate: 5.9% (on more than $315,000 of taxable income for married joint filers and more than $210,000 for single filers)

Starting in 2022, the Land of Enchantment offers a limited and temporary tax break for military pensions. Up to $10,000 of military retirement pay is exempt from tax for the 2022 tax year. The exemption amount is increased to $20,000 for 2023, and then to $30,000 for 2024 to 2026. However, the exemption goes away after 2026.

In addition, people who are 65 or older may receive an $8,000 general income exemption, but to qualify, their adjusted gross income must be less than $28,500 for singles or $51,000 for married couples filing jointly. If you're at least 100 years old, all your income is exempt.

For more information about New Mexico taxes, see the New Mexico State Tax Guide (opens in new tab).

11/16

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North Carolina Tax on Military Retirement Pay

• Income tax rate: Flat tax of 4.99%

In North Carolina, some veterans might have to pay tax on their military retirement pay. Military pensions are only exempt if the retired veteran (1) served at least 20 years, or (2) is medically retired. This exemption doesn't apply to severance pay received due to separation from the U.S. armed forces.

In addition, income from other federal government retirement plans, or designated North Carolina state and local government retirement plans, is exempt if the retiree had five or more years of creditable service as of August 12, 1989. This exemption is known as the "Bailey exemption."

For more information about North Carolina taxes, see the North Carolina State Tax Guide (opens in new tab).

12/16

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Oregon Tax on Military Retirement Pay

• Lowest income tax rate: 4.75% (on up to $7,300 of taxable income for married joint filers and up to $3,650 for single filers)
• Highest income tax rate: 9.9% (on more than $250,000 of taxable income for married joint filers and more than $125,000 for single filers)

The Beaver State offers a complete exemption for military retirement pay...but there's a catch. Only income from federal government retirement plans for work or points earned before October 1, 1991, is exempt. If this requirement isn't satisfied, then your military pension income is taxable.

Oregon does allow residents to deduct payments from an IRA, Keogh plan, SEP plan, and certain government plans if another state has already taxed contributions to the plan made while he or she was a nonresident.

In addition, Oregonians age 62 and older may also qualify for a tax credit equal to the lesser of their Oregon tax liability or 9% of taxable retirement income, depending on the amount of their household income, Social Security benefits and Railroad Retirement benefits.

For more information about Oregon taxes, see the Oregon State Tax Guide (opens in new tab).

13/16

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Rhode Island Tax on Military Retirement Pay

• Lowest income tax rate: 3.75% (on up to $68,200 of taxable income)
• Highest income tax rate: 5.99% (on more than $155,050 of taxable income)

The Ocean State taxes military retirement pay above a certain amount...but not for much longer. Currently, taxpayers who have reached full retirement age can exclude up to $15,000 of income ($20,000 starting in 2023) from private, government, or military retirement plans (not including IRAs). Any income over that amount is taxable. The exemption is limited to veterans with an overall income below a certain amount. For the 2021 tax year, federal adjusted gross income couldn't exceed $109,050 for joint filers and qualifying widow(er)s, $87,200 for single and head-of-household filers, or $87,225 for married people filing separate returns (thresholds for the 2022 tax year aren't available yet).

Beginning in 2023, though, military retirement income is fully exempt from tax. However, this exemption and the general retirement plan exemption can't exceed the amount of military retirement income received in the tax year.

For more information about Rhode Island taxes, see the Rhode Island State Tax Guide (opens in new tab).

14/16

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Vermont Tax on Military Retirement Pay

• Lowest income tax rate: 3.35% (on up to $70,450 of taxable income for married joint filers and up to $42,150 for single filers)
• Highest income tax rate: 8.75% (on more than $259,500 of taxable income for married joint filers and more than $213,150 for single filers)

Veterans in the Green Mountain State get some relief when it comes to state taxes on their pension. It just isn't a lot. The first $10,000 of income from the federal Civil Service Retirement System or a military pension is not taxed by Vermont for joint filers with a federal adjusted gross income of $65,000 or less and other taxpayers with a federal AGI of $50,000 or less. Retirees who exceed the income limits may qualify for a reduced exemption.

The exemption also applies to income from a federal, state, or local government contributory annuity, pension, endowment, or retirement system based on earnings that were not covered by the federal Social Security Act.

The exclusion can't be taken if an exclusion for Social Security benefits is claimed.

For more information about Vermont taxes, see the Vermont State Tax Guide (opens in new tab).

15/16

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Virginia Tax on Military Retirement Pay

• Lowest income tax rate: 2% (on up to $3,000 of taxable income)
• Highest income tax rate: 5.75% (on more than $17,000 of taxable income)

Congressional Medal of Honor recipients don't pay Virginia tax on income from a military retirement plan. Plus, beginning in 2022, veterans 55 years of age and older can deduct up to $10,000 of military retirement income and other military benefits. The deduction is increased to $20,000 for 2023, $30,000 for 2024, and $40,000 for 2025 and thereafter.

The state also provides an age-based deduction against all income that is available to anyone who qualifies. Seniors born on or before January 1, 1939, can deduct $12,000. For those born after January 1, 1939, who are at least 65 years old, the deduction is reduced by $1 for every $1 that federal AGI exceeds $50,000 (or $75,000 for married filers). However, you can't claim the deduction for military retirement pay on income used to calculate this deduction.

For more information about Virginia taxes, see the Virginia State Tax Guide (opens in new tab).

16/16

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States That Don't Tax Military Retirement Pay

Given the list above, that means there are 36 states that don't tax military retirement pay. In some cases, it's because the state doesn't have an income tax. However, in other places, it's because the state specifically exempts military pensions from tax or provides a tax credit for it.

Here's a list of states that don't tax military retirement pay:

• Alabama (opens in new tab) (exempts military retirement pay)
• Alaska (opens in new tab) (no income tax)
• Arizona (opens in new tab) (exempts military retirement pay)
• Arkansas (opens in new tab) (exempts military retirement pay)
• Connecticut (opens in new tab) (exempts military retirement pay)
• Florida (opens in new tab) (no income tax)
• Hawaii (opens in new tab) (exempts military retirement pay)
• Illinois (opens in new tab) (exempts military retirement pay)
• Indiana (opens in new tab) (exempts military retirement pay)
• Iowa (opens in new tab) (exempts military retirement pay)
• Kansas (opens in new tab) (exempts military retirement pay)
• Louisiana (opens in new tab) (exempts military retirement pay)
• Maine (opens in new tab) (exempts military retirement pay)
• Massachusetts (opens in new tab) (exempts military retirement pay)
• Michigan (opens in new tab) (exempts military retirement pay)
• Minnesota (opens in new tab) (exempts military retirement pay)
• Mississippi (opens in new tab) (exempts military retirement pay)
• Missouri (opens in new tab) (exempts military retirement pay)
• Nebraska (opens in new tab) (exempts military retirement pay)
• Nevada (opens in new tab) (no income tax)
• New Hampshire (opens in new tab) (no income tax)
• New Jersey (opens in new tab) (exempts military retirement pay)
• New York (opens in new tab) (exempts military retirement pay)
• North Dakota (opens in new tab) (exempts military retirement pay)
• Ohio (opens in new tab) (exempts military retirement pay)
• Oklahoma (opens in new tab) (exempts military retirement pay)
• Pennsylvania (opens in new tab) (exempts military retirement pay)
• South Carolina (opens in new tab) (exempts military retirement pay)
• South Dakota (opens in new tab) (no income tax)
• Tennessee (opens in new tab) (no income tax)
• Texas (opens in new tab) (no income tax)
• Utah (opens in new tab) (tax credit for military retirement pay)
• Washington (opens in new tab) (no income tax)
• West Virginia (opens in new tab) (exempts military retirement pay)
• Wisconsin (opens in new tab) (exempts military retirement pay)
• Wyoming (opens in new tab) (no income tax)