If you’re a retired military personnel, where you choose to spend your post-service years can significantly affect your financial situation.
Some states offer tax breaks and exemptions on military retirement pay, and maybe you can retire early. Others impose state income tax (fully or partially), potentially impacting retirees’ overall income.
Here, we delve into 13 states that tax military retirement pay and outline the specific parameters affecting retirees in each state.
- California
In California, military retirement pay is treated as regular or pension income (following federal tax rules). This subjects retirees to California’s state income tax laws, potentially impacting their overall tax liability.
Retirees in California may need to consider other strategies to mitigate their tax burden, such as careful financial planning or exploring tax-efficient investment options.
Each year, the IRS forgives millions in unpaid taxes. If you have more than $10,000 in tax debt, or have 3+ years of unfiled taxes, you could get forgiveness too. You might be eligible to lower the amount you owe, or eliminate your tax debt completely.
- District of Columbia
Similar to California, military retirement pay is considered regular income in the District of Columbia, requiring retirees to pay income tax on their retirement benefits.
Retirees contemplating a move to D.C. (or if they live there already) should factor in these tax implications when evaluating their retirement options.
- Colorado
Retirees under 55 can exclude up to $10,000 from their taxable income, increasing to $20,000 for those ages 55 to 64, and $24,000 for those 65 and older.
Colorado’s tiered exemption system provides incremental tax relief based on age, offering retirees a pathway to gradually reduce their tax liability as they age.
- Delaware
Up to $12,500 of military pension income is exempt for taxpayers of all ages in Delaware, offering some relief for retirees residing in the state.
This exemption can significantly benefit retirees, allowing them to keep more of their retirement income for living expenses, health care, and other essential needs.
- Georgia
Retirees younger than 62 can exclude $17,500 of military retirement income, with an additional $17,500 exemption available for those with over $17,500 of earned income in Georgia.
Georgia’s tax exemptions provide retirees with opportunities to reduce their tax burden, enabling them to stretch their retirement savings further and enjoy a higher quality of life in the state.
- Idaho
In Idaho, military retirement pay is tax-free for retirees over 65 or disabled retirees over 62. Idaho’s tax policy aims to support retired military personnel by exempting their retirement income from state taxation, enhancing their financial security in retirement.
- Kentucky
Kentucky offers tax exemptions on military retirement pay, with retirees able to exclude up to $31,110 from their state taxes, or potentially more for former service members or those retired before Jan. 1, 1998.
Retirees in Kentucky can leverage these tax benefits to maximize their retirement income and enjoy a comfortable lifestyle in the state.
- Maryland
Starting in 2023, the first $12,500 of military retirement income is tax-free, increasing to $20,000 for retirees ages 55 and older.
Maryland’s tax exemption for military retirement income provides retirees with valuable tax savings, allowing them to allocate more resources toward their retirement goals and priorities.
- Montana
Montana exempts up to $4,640 of military retirement pay if gross income is less than $38,660, with plans to exempt up to half of military retirement pay starting from the 2024 tax year for up to five years. This rule applies only after the retiree becomes a Montana resident or starts to receive retirement pay.
Montana’s phased approach to military retirement tax exemptions reflects the state’s commitment to supporting its retired military population.
- New Mexico
Retirees can enjoy tax-free military retirement pay of up to $20,000 in 2023, increasing to $30,000 for 2024, 2025, and 2026. All income is exempt from taxes for retirees who are 100 or older.
New Mexico’s tax exemption for military retirement income offers retirees financial relief, allowing them to retain more of their retirement benefits for essential expenses, leisure activities, and other discretionary spending.
- Oregon
Military retirement pay is subject to taxation based on service dates, with exemptions available for service before Oct. 1, 1991, while past that date, retirement pay is taxed normally.
Oregon’s tax treatment of military retirement pay underscores the importance of understanding eligibility criteria and service dates to determine tax obligations accurately.
- Vermont
Beginning in 2022, retirees with a gross income under $50,000 for single filers or $65,000 for joint filers can enjoy tax-free retirement income of up to $10,000 in Vermont.
Vermont’s tax exemption for retirement income aims to support retirees with modest incomes, providing them with additional financial security and stability in their post-service years.
- Virginia
In Virginia, retirees age 55 and older can deduct up to $20,000 in military benefits from their 2023 state income taxes. What’s more? The deduction increases to $30,000 for the 2024 tax year and to $40,000 for 2025 and beyond.
Virginia’s phased approach to retirement pay deductions offers retirees predictable tax relief, enabling them to plan and budget effectively for their retirement years.
When planning for retirement, military personnel must consider the tax implications of their chosen retirement destination. Seniors may be wasting money by living in a state that taxes military retirement pay.
Understanding which states tax military retirement pay and the available exemptions can significantly impact retirees’ financial planning and overall quality of life in their post-service years.
As you weigh your options, consider not only the lifestyle and climate of a state but also its tax policies to ensure a financially secure retirement.
Should you be in the midst of a military divorce or contemplating divorce, contact the Law Offices of Renee Lazar at 978-844-4095 to schedule a FREE one hour no obligation consultation.
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