Does Delaware Tax Military Retirement?

Delaware’s tax policies for military retirement income are a common area of inquiry for service members and their families. Understanding these regulations is important for financial planning and ensuring compliance with state tax laws. This article provides an overview of how Delaware addresses military retirement income, the types of income that qualify for exemptions, the process for claiming these benefits, and the role of residency for military personnel within the state’s tax framework.

Delaware’s Approach to Military Retirement Income

Delaware provides specific tax exclusions for military retired pay. For residents under the age of 60, a military retired pay income tax exclusion of up to $12,500 is available. Once a retired service member reaches age 60, they become eligible for the standard pension exclusion, which also amounts to $12,500.

Beyond these established exclusions, Delaware is phasing in a more expansive exemption for military pensions. Legislation has been enacted to gradually increase this benefit, leading to a 100% exemption of military pensions from state income taxation, regardless of age, for taxable years beginning on or after January 1, 2025.

Qualifying Military Retirement Income

The term “military pension” for Delaware tax purposes refers to retirement pay received as a result of an individual’s service in the armed forces of the United States, which includes the National Guard. Certain other forms of military-related income also receive specific tax treatment.

Military disability retirement pay, when received as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service, is not included in taxable income. This includes disability compensation and pension payments from the Department of Veterans Affairs. Additionally, annuities received under the Survivor Benefit Plan (SBP), Reserve Component Survivor Benefit Plan (RCSBP), and Retired Serviceman’s Family Protection Plan (RSFPP) are eligible for exclusions, with amounts varying based on the recipient’s age. Distributions from the Thrift Savings Plan (TSP) are subject to state taxes.

Claiming the Delaware Exemption

To claim the military retirement income exemption, residents report their total income on their Delaware individual resident income tax form, such as Form PIT-RES. The applicable exclusion is then applied as a subtraction from income.

Tax preparation software guides taxpayers through this process by including specific sections for pension exclusions or subtractions. For those under 60, the military pension exclusion is entered as a specific deduction within the state’s additions and subtractions section of the tax return. The instructions accompanying the state’s resident income tax form provide guidance on where to report military retirement income and how to apply the exclusion amount.

Delaware Residency and Military Personnel

State tax obligations, including those related to military retirement income, are determined by an individual’s legal residency or domicile. For military personnel, establishing legal residency can be complex due to frequent relocations based on duty assignments. The Servicemembers Civil Relief Act (SCRA) is important in this area.

SCRA provides that a service member’s domicile for tax purposes does not change solely because they are present in a different state due to military orders. This means military members are not required to pay state income taxes on their military earnings to a state where they are stationed if it is not their home state of legal residency. The Military Spouses Residency Relief Act (MSRRA) extends similar tax protections to military spouses, allowing them to retain their legal residence for tax purposes even when accompanying a service member to a new duty station.