What is the federal tax rate on military retirement pay

Which states don’t tax military retirement pay?

You may be surprised to learn that 33 states do not tax any of your military retirement pay, while 14 states offer special considerations for military retirement income or other pension plans. That leaves only four states that offer no special tax treatment of military pensions. Washington, D.C. is included in these facts.

Since I couldn’t find a website with detailed, state-by-state tax information on the whole income picture, I decided to create my own. Where applicable, I try to include links to the relevant state website, so you can double-check this information whenever you want. Keep in mind this information is subject to change based on state laws.

How State Taxes Impact Your Financial Planning

Understanding your taxes is a big part of financial planning, whether you are in the midst of your career or are reaching your retirement years. Which parts of your income and how much they are taxed can have a large impact on your financial planning and goals. That is why we put together this list of states that tax military retirement pay.

However, when you’re deciding where to live after leaving the military, taxes on military pensions are only one part of the equation. It’s also important to consider taxes on the rest of your income. Understanding the big picture can help your military retirement pay go further.

Many states have multiple income tax brackets based on taxable income. However, this article only contains the highest marginal individual tax bracket. For a true side-by-side comparison on tax liability, you might want to run the numbers yourself. 

If you are planning a more complex post-retirement career, such as owning your own business, you may want to sit down with a tax professional or fee-only financial planner for more detailed tax planning.

State Taxes on Military Retirement Pay – Full Table

The following table shows state income taxes on military retirement pay, including which states have no state income tax, which states exempt military pension income from state taxes, which states offer special tax treatments for military pensions and which states tax military retirement pay as ordinary income. The sections below the table offer further details on state income taxes.

States With No Income Tax

There are nine states that have no state income tax*.

• Alaska
• Florida
• Nevada
• New Hampshire (institutes tax on interest and dividends)*
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

* New Hampshire taxes residents on interest and dividends but does not tax regular earned income or pension income. Taxes on interest and dividends represent a small amount of taxes for most taxpayers in these states.

The following 24 states have a state income tax, but exempt military retirement pay and/or pension income from state income taxes. See the next section for more details regarding each state’s highest marginal tax bracket and special tax treatment for military retirement income.

• Alabama
• Arizona
• Arkansas
• Connecticut
• Hawaii
• Illinois
• Indiana (through 2021; military retirement pay will be tax-exempt beginning Jan. 1, 2022).
• Iowa
• Kansas
• Louisiana
• Maine
• Massachusetts
• Michigan
• Minnesota
• Mississippi
• Missouri
• Nebraska (through 2021; military retirement pay will be tax-exempt beginning Jan. 1, 2022).
• New Jersey
• New York
• North Carolina
• North Dakota
• Ohio
• Pennsylvania
• Utah
• West Virginia
• Wisconsin

States Offering Partial Exemptions on Military Retirement Income

The following 16 states have partial income tax exemptions for military retirement pay:

• Colorado
• Delaware
• Georgia
• Idaho
• Kentucky
• Maryland
• Montana
• New Mexico
• Oklahoma
• Oregon
• Rhode Island
• South Carolina

States That Fully Tax Military Retirement Pay

The following states offer no special tax treatment for military retirement pensions:

• California
• Vermont
• Virginia
• Washington, D.C.

Highest Marginal Tax Rates by State and Military Pension Tax Rates

This section covers the highest state income tax bracket, as well as more details regarding taxation on military retirement pay. 

You will note that several of the states that offer special considerations for military retirement pay or other pensions often do so by age, usually somewhere in the age 60-65 range, depending on the state. 

Age 60 is the normal age for receiving Guard and Reserve retirement benefits, though some members do qualify to receive retirement pay early based on deployments. You can use this information to help plan your post-military career or your post-military retirement plans.

Alabama

• Highest marginal tax rate: 5% for income above $3,000 (individuals) or $6,000 (married filing jointly).
• Exempt from taxes on military retirement pay.

Alaska

• No state income tax.
• No taxes on military retirement pay.

Arizona

• Highest marginal tax rate: 4.54% for income above $150,000 (individuals) or $300,000 (married filing jointly).
• Military retirement pay is exempt beginning Jan. 1, 2021.
• For prior tax years, up to $3,500 in military retirement pay can be exempted from taxable income.

Arkansas

• Highest marginal tax rate: 7.0% (for income above $35,300 – as of 2015).
• No taxes on military retirement pay. Up to $6,000 in other retirement pensions can be exempted from taxable income.

California

• Highest marginal tax rate: 13.3% for income above $537,498 (single) and $1,074,996 (married filing jointly).
• Military pension is fully taxable.

Colorado

• Highest marginal tax rate: 4.63% for all income, regardless of filing status.
• The following military pension amounts can be excluded from Colorado income, based upon age:
  • $20,000 (55-64)
  • $24,000 (65+)

Connecticut

• Highest marginal tax rate: 6.99% for income above $500,000 (single) and $1,000,000 (married filing jointly).
• Military pension is fully exempt from taxes.

Delaware

• Highest marginal tax rate: 6.6% for income above $60,000 regardless of status (more info).
• The following military pension amounts can be excluded from Delaware income, based on age:
  • $2,000 (under 60)
  • $12,500 (60+)

Florida

• No state income tax.
• No taxes on military retirement pay.

Georgia

• Highest marginal tax rate: 6.0% for income above $7,000 (single) or $10,000 (married filing jointly).
• Military pensions are fully taxable.

Hawaii

• Highest marginal tax rate: 11.0% for income above $200,000 (single) or $400,000 (married filing jointly).
• Military pensions are fully exempt.

Idaho

• Highest marginal tax rate: 7.4% for income above $10,905 (single) or $21,810 (married filing jointly).
• Military pensions are partially exempted according to the following table:
  • Married filing jointly (must be either 65+ or 62+ and disabled): $47,934
  • Single (must be either 65+ or 62+ and disabled): $31,956

Illinois

• Highest marginal tax rate: 4.95% for all taxpayers .
• Military pensions are fully exempt.

Indiana

• Highest marginal tax rate: 3.2% for all taxpayers.
• Military retirees are allowed to deduct up to $6,250 of their pension through the end of tax year 2021. Military retirement pay is exempt from taxes beginning Jan. 1, 2022.
• The state of Indiana phased out income taxes on military retirement pay over a four-year period, starting with 2019 taxes. In 2019, 25% of the amount above $6,250 will be tax-exempt, followed by 50% in 2020, 75% in 2021 and the full amount in 2022.
• This exemption does not extend to retirees of the U.S. Public Health Service or the National Atmospheric and Oceanic Administration.

Iowa

• Highest marginal tax rate: 8.98% for income above $95,600, regardless of filing status.
• Military pensions are fully exempt.

Kansas

• Highest marginal tax rate: 4.6% for income above $15,000 (single) or $30,000 (married filing jointly).
• Military pensions are fully exempt.

Kentucky

• Highest marginal tax rate: 6% for income above $75,000 regardless of status.
• Military pensions are fully exempt if you retired before 1997. Personnel retiring after 1997 are subject to taxation to the extent their pension exceeds $41,110.

Louisiana

• Highest marginal tax rate: 6% for income above $50,000 (single) or $100,000 (married filing jointly).
• Military pension benefits may be excluded from taxable income.

Maine

• Highest marginal tax rate: 7.95% for income above $20,900 (single) or $41,850 (married filing jointly).
• Military pension benefits are exempt from Maine income tax.

Maryland

• Highest marginal tax rate: 5.75% for income above $250,000 (single) or $300,000 (married filing jointly).
• Retirees are able to exclude the first $5,000 ($15,000 if 55 or older) of their military pension benefits.

Massachusetts

• Highest marginal tax rate: 5.1% for all income, regardless of tax bracket or status.
• Military pensions are exempt from Massachusetts income tax.

Michigan

• Highest marginal tax rate: 4.25% for all income, regardless of tax bracket or status.
• Military pensions are exempt from Michigan income tax.

Minnesota

• Highest marginal tax rate: 9.85% for income above $154,950 (single) or $258,261 (married filing jointly).
• Military pensions are exempt from Minnesota income tax.

Mississippi

• Highest marginal tax rate: 5.0% for income above $10,000 regardless of status.
• Military pensions are exempt from Mississippi income tax.

Missouri

• Highest marginal tax rate: 6.0% for income above $9,000 regardless of status.
• Military pensions are exempt from Missouri income tax.

Montana

• Highest marginal tax rate: 6.9% for income above $17,100 regardless of status.
• Military pensions are subject to Montana state tax.

Nebraska

• Highest marginal tax rate: 6.84% for income above $29,460 (single) or $58,920 (married filing jointly).
• Military retirement pay will be fully tax exempt, beginning Jan. 1, 2022. 
• For prior tax years, military retirees who retire after July 18, 2012, are allowed to exclude pension income according to one of the following two schedules:

An individual must make the election on or after July 18, 2014, and within two years after his or her retirement from the uniformed services, even if he or she does not begin receiving military retirement benefits immediately upon retirement. The individual may elect:

• Option 1: To exclude 40% of his or her military retirement benefit income for seven consecutive taxable years, beginning with the year in which the election is made
• Option 2: To exclude 15% of his or her military retirement benefit income for all taxable years, beginning with the year in which he or she turns 67 years of age

Nevada

• No state income tax.
• No taxes on military retirement pay.

New Hampshire

• Highest tax rate: 5% on interest and dividend income. There is no individual income tax on W-2 pay.
• Military pensions are exempt from New Hampshire income tax.

New Jersey

• Highest marginal tax rate: 8.97% regardless of filing status.
• No taxes on military retirement pay in New Jersey.

New Mexico

• Highest marginal tax rate: 4.9% for income above $16,000 (single) or $24,000 (married filing jointly).
• Exemption may be allowed for low-income retirees.

New York

• Highest marginal tax rate: 8.82% for income above $1062,650 (single) or $2,125,450 (married filing jointly).
• No taxes on military retirement income in New York.

North Carolina

• Highest marginal tax rate: 5.85% for all taxpayers, regardless of status.
• Military retirees with 20 years of creditable service and medically retired veterans are exempt from state income taxes on military retirement pay or military survivors benefits.
• More about North Carolina income tax for military service members.

North Dakota

• Highest marginal tax rate: 2.9% for income above $413,000 (single) or $420,000 (married filing jointly).
• Military pensions are fully exempt, starting in the 2019 tax year.
• This exemption does not extend to retirees of the U.S. Public Health Service or the National Atmospheric and Oceanic Administration.

Ohio

• Highest marginal tax rate: 4.997% for income above $208,500 regardless of status.
• Military pensions are fully exempt from Ohio income tax.

Oklahoma

• Highest marginal tax rate: 5.25% for income above $15,000 (single) or $27,600 (married filing jointly).
• Retired service members may deduct the greater of $10,000 or 75% of their retirement income from Oklahoma income tax.

Oregon

• Highest marginal tax rate: 9.9% for income above $125,000 (single) or $250,000 (married filing jointly).
• You may subtract your pension from Oregon income tax to the extent it was earned before Oct. 1, 1991. If all of your service was after Oct. 1, 1991, your entire pension is taxable.

Pennsylvania

• Highest marginal tax rate: 3.07% for all income regardless of filing status.
• Pennsylvania does not tax military pension income.

Rhode Island

• Highest marginal tax rate: 5.99% for income above $137,650 regardless of filing status.
• Military pensions are fully taxable.

South Carolina

• Highest marginal tax rate: 7.0% for income above $14,700 (single) or $15,400 (married filing jointly).
• Military pensions can be deducted in the following amounts:
  • Under 65: $17,500 per year
  • Age 65+: $30,000 per year

South Dakota

• No state income tax.
• No taxes on military retirement pay.

Tennessee

• No state income tax.
• No taxes on military retirement pay.

Texas

• No state income tax.
• No taxes on military retirement pay.

Utah

• Highest marginal tax rate: 4.95% for all income regardless of filing status.
• Utah began offering income tax exemption from Social Security benefits, military retirement pay or military survivor benefit plan pay beginning Jan. 1, 2021. Beneficiaries who are eligible for both must choose which income to waive for income tax purposes. People over 65 may be eligible for a $450 (single) or $900 (married filing jointly) exclusion. However, income phaseouts apply.

Vermont

• Highest marginal tax rate: 8.95% for income above $411,500 regardless of filing status.
• Military pensions are fully taxable.

Virginia

• Highest marginal tax rate: 5.75% for income above $17,000 regardless of filing status.
• Military pensions are fully taxable.

Washington

• No state income tax.
• No taxes on military retirement pay.

Washington, D.C.

• Highest marginal tax rate: 8.95% for income above $1,000,000 .
• Military retirees 62 and older are allowed to deduct up to $3,000 of their public pension. Private pensions are not exempt from deductions.

West Virginia

• Highest marginal tax rate: 6.5% for income above $30,000 (married filing separately) or $60,000 (single or married filing jointly).
• The first $2,000 in pension income can be excluded.

Wisconsin

• Highest marginal tax rate: 7.65% for income above $244,750 (single) or $326,330 (married filing jointly).
• Military pensions are fully exempt.

Wyoming

• No state income tax.
• No taxes on military retirement pay.

Other Notes About Military Retirement Pay and Taxes

Military retirees pay federal taxes on retirement pay. However, there are situations that may impact your retirement pay. A common one is receiving VA disability compensation due to a service-connected disability rating. 

VA disability compensation is a non-taxable benefit. However, receiving disability compensation can impact your retirement pay. Military retirees who have a service-connected disability rating of 50% or higher receive concurrent receipt. This has no impact on military retirement pay.

Those with a service-connected disability rating of 40% or less are ineligible for concurrent receipt and have their military pension reduced by the amount of disability compensation they receive from the VA. The amount from the VA is non-taxable. 

The net effect is to receive the same amount of income. However, the portion from the VA is tax-exempt, which lowers your effective taxable income. There may be exceptions for retirees receiving combat-related special compensation, or CRSC.

I hope this article helps you to find the tax information you need as you look to make your relocation decision. Just remember, taxes are only a small factor in your relocation decision. You should take a look at all the different priorities in your life and make the relocation decision that best suits you.

About Post Author

Forrest Baumhover

Forrest Baumhover is a Certified Financial Planner™ and enrolled agent. As a retired naval officer, Forrest helps veterans, transitioning service members and their families address the financial challenges of post-military life so they can achieve financial independence and spend more time doing the things they love.

In his spare time, Forrest writes articles on obscure personal finance topics. You can read them at his website, Teach Me! Personal Finance .