Devoting a life to the military entails a lot of sacrifices and time away from loved ones. To honor and return these sacrifices, there are some states that don’t tax military retirement.
Military retirement tax exemptions are one of the many privileges offered to military personnel. Taking into account which states offer these should be considered when planning for life after duty. Scroll down further to find out the best states for military retirees’ taxes.
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What is Military Retirement Pay
The following qualifications are needed for soldiers to be eligible for military retirement pay:
- You are a US military personnel
- You have served your country for more than 20 years or have retired early due to a medical condition
- You are a reservist of at least 60 years old who has served for more than 20 years
Depending on when you entered the military, you may be eligible for different retirement plans. These plans have distinct multipliers and conditions for calculating your pay chart.
Federal tax is imposed on all military retirement pay. You can calculate this through a federal tax on military retirement calculators. Depending on where you retire, there are some states that don’t tax military retirement or social security on top of the federal tax.
Military Tax Exempt States
When it comes to tax on military retirement pay, states can be categorized into four different categories:
- States with no income tax at all
- States where military retirement is not taxed
- States that provide partial military retirement tax exemptions
- States that tax military pay
States that don’t impose income tax encompass income received by any individual, whether it is by military personnel or civilians. Below are the states that don’t tax pensions:
- Nevada
- Alaska
- New Hampshire
- Texas
- South Dakota
- Wyoming
- Tennessee
- Florida
- Washington
Aside from these, there are 29 other military retirement-friendly states. These states don’t tax military pay specifically.
- Arizona
- Arkansas
- Hawaii
- Alabama
- Connecticut
- Kansas
- Illinois
- Kentucky
- Iowa
- Indiana
- Minnesota
- Louisiana
- Nebraska
- Massachusetts
- Michigan
- Maine
- Mississippi
- New Jersey
- Missouri
- Ohio
- New York
- Rhode Island
- North Dakota
- North Carolina
- Pennsylvania
- West Virginia
- Utah
- Wisconsin
- South Carolina
The 38 states above are the best tax-friendly states for military retirees. These states have altogether stopped taxing military retirement. It’s worth considering these states when deciding where to retire.
Now aside from these, there are also some states that offer partial exemptions or other benefits for military retirees. Below is the list of states providing partial tax breaks.
- Colorado
- Delaware
- Georgia
- Idaho
- Kentucky
- Maryland
- Montana
- New Mexico
- Oklahoma
- Oregon
- Vermont
- Virginia
Benefits given by these states include having a lower income tax rate compared to everyone else. They may not be fully tax exemptions but they are also privileges that retired military personnel can enjoy.
Currently, there are only two remaining places in the country where military pensions are taxable: California and Washington D.C.
Frequently Asked Questions
Why is military retirement taxed so high?
Taxes are a form of income for the government. Most, if not all, forms of income are taxed on the federal level. This is a way for the government to raise funds to provide public services.
There are numerous military retirement tax-free states which ease the burden of retirement taxes on veterans so you’ll only have to worry about taxes on the federal level. It is important to note that retired military pay taxes by state.
Is military retirement considered income for social security?
Although your military retirement pay is taxed by the federal government, there are still certain exemptions that veterans can enjoy. For example, since military retirement is not considered social income for social security, it is exempt from FICA tax.
Is military retirement taxable if 100 disabled?
If you are a retired military personnel with a disability rating of at least 50%, you are eligible for Concurrent Retirement Disability Pay (CRDP). Before the implementation of this plan, disabled retirees can only choose one payment to receive – their military retirement pay or their Department of Veteran Affairs (VA) disability compensation.
With the CRDP, retired military personnel are eligible for a special benefit wherein they can receive both their military retirement pay and their VA disability pay without any deductions.
If you have a disability rating of more than 10% but less than 50%, you are only qualified for the Combat-related Special Compensation (CRSC). This type of payment allows you to enjoy both your military retirement pay and your VA disability pay but with certain deductions.
What is the difference between military retirement pay and VA disability compensation?
Both the military retirement pay and the VA disability compensation are benefits given to retired military personnel.
Military retirement pay is taxed by the federal government and some states make military retirement tax-free. The VA disability compensation is not taxed.
Furthermore, the retirement pay is calculated based on the number of years you have served while the disability pay is calculated based on the amount of lost work due to disability.
These payments are not the same and veterans should consider these differences in their retirement plans.
Conclusion
Retired military personnel need to maximize all the benefits they can receive as a result of all their sacrifices and hard work while on active duty.
Knowing all the retirement plans available is one important step towards this goal. Knowing where to avail of these plans is the next one.
While military retirement compensation is taxed at the federal level, there are many states that don’t tax military retirement pay. These tax-friendly states for military retirees ensure veterans deserve to enjoy the fruits of their labor and sacrifices for our country.
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