These states usually limit these partial exemptions to retirees 55 or older, though many start at the traditional retirement age of 65. The District of Columbia also falls into this category. The following states tax military retirement income partially, through income exemptions and exclusions: These states don't have higher tax rates for these retirement benefits, but rather, include them partially or fully in your taxable income like all other income sources. Many states award partial taxation rules or no special tax benefits to military retirees' pay. States that tax military retirement pay fully, partially, or in a different way One other state, New Hampshire, only charges state income taxes on dividends and interest income. States that don't tax military retirement pay include:Įight states have no state income tax whatsoever: States that don't tax military retirement pay Some tax this income fully, and some impose a partial tax. Many states choose not to include military retirement pay in state income taxes, whether it's to acknowledge your service to your country or to make that state a more attractive place for veterans to live. TurboTax Tip: In honor of our nation's military personnel, all enlisted active duty and reserve military can file federal and state taxes for free with TurboTax Online using the TurboTax Military Discount. Disability compensation received from the Veterans Administration Disability Compensation program is nontaxable income and is separate from military retirement compensation. When it comes to military retirement pay, in almost all cases, your pension benefits count as taxable income at the federal level. The system and the High-36 System cap out at a 75% maximum. If you joined on or before September 8, 1980, you may also use the 2.5% multiplier per-year-served based on your active duty base pay at the time of retirement. The Blended Retirement System (BRS), which provides access to matching contributions in the Thrift Savings Plan, mid-career retention bonuses, and a monthly annuity based on 2% of your pay per year served.The Legacy High-3 (High-36) System, which pays 2.5% per year served times the average of your highest 36 months of basic pay.Likewise, typically you can qualify for retirement pay as a reservist if you accrue 20 qualifying years of service and reach age 60.ĭepending on when you joined the military, you can enroll in different retirement systems. Army, Navy, Air Force, Marine Corps, or Coast Guard for 20 years or longer or have retired earlier for medical reasons, you may qualify for U.S. If you've served on active duty in the U.S. Learn about the states that don't tax military retirement and those that do, as well as what to consider before choosing to relocate to take advantage of these tax breaks. In fact, several states don't tax military retirement at all. Many states recognize this service by choosing to provide favorable tax treatment for your military retirement pay. After transitioning to civilian life, you may receive military retirement pay in exchange for your years of service. If you're approaching retirement from the military, you'll want to start planning your finances. Seven states tax military retirement pay fully and offer little to no tax benefits for retirement income: California, Georgia, Montana, Rhode Island, Utah, Vermont, and Virginia.The District of Columbia also taxes military benefits partially. These states include Colorado, Delaware, Idaho, Kentucky, Maryland, New Mexico, Oregon, South Carolina, and West Virginia. Nine states tax military retirement benefits, but only partially.Twenty-five states have state income taxes, but they don't tax military retirement benefits: Alabama, Arizona, Arkansas, Connecticut, Hawaii, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, and Wisconsin.New Hampshire taxes only dividends and interest income. Eight states-Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming-have no state income tax.
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