Does Oklahoma Tax Military Retirement?
Understand Oklahoma's tax policies for military retirement income and other financial considerations for retirees in the state.
State tax laws significantly influence financial planning for military retirees. Each state sets its own rules for taxing retirement income, including military pensions. These regulations directly affect a retiree’s disposable income and can influence where they choose to live. Analyzing these tax implications helps ensure informed financial decisions.
Oklahoma Military Retirement Income Tax Exemption
Oklahoma provides a comprehensive exemption for military retirement income. Starting with the tax year 2022, the state completely exempts 100% of retirement benefits received from the U.S. Armed Forces from state income tax. This full exemption represents a change from previous years, where the exclusion was limited to the greater of 75% of benefits or $10,000.
This exemption encompasses all military retirement pay. Military disability retirement pay is also excluded from taxable income in Oklahoma. Additionally, certain survivor benefits, such as Survivor Benefit Plan (SBP) annuities, Reserve Component Survivor Benefit Plan (RCSBP) annuities, and Retired Serviceman’s Family Protection Plan (RSFPP) annuities, are eligible for an exclusion of up to $10,000 for surviving spouses, provided they are included in federal adjusted gross income.
How the Exemption Affects Your State Tax
The 100% military retirement income tax exemption directly reduces an individual’s state taxable income in Oklahoma. This means military pension income is not factored into state income tax liability. As a result, military retirees experience a lower overall state income tax burden compared to states that tax such income.
Claiming this exemption involves reporting military retirement income on specific Oklahoma state tax forms. Residents may utilize Form 511, Schedule 511-A, while non-residents might use Form 511NR, Schedule 511NR-B. This process removes the exempted income from the state’s tax base, allowing military retirees to retain more of their pension income.
Other Oklahoma Taxes for Military Retirees
Beyond income tax, military retirees in Oklahoma encounter other state and local taxes, including sales tax and property tax. The statewide sales tax rate in Oklahoma is 4.5%. However, combined with municipal and county sales taxes, the total rate can be significantly higher, potentially reaching up to 11.5% in some areas.
Sales Tax Relief for Disabled Veterans
For eligible disabled veterans, Oklahoma offers sales tax relief. An annual sales tax exemption is available for 100% disabled veterans, allowing them to exempt up to $25,000 in taxable sales. Their un-remarried surviving spouses may also qualify for an exemption of up to $1,000 in taxable sales annually.
Property Tax Exemption for Disabled Veterans
Regarding property tax, Oklahoma provides a 100% property tax exemption on the homestead for qualifying disabled veterans and their surviving spouses. To qualify, veterans must have an honorable discharge, be an Oklahoma resident, and possess a 100% total and permanent service-connected disability rating from the Department of Veterans Affairs. The application for this exemption is made using Oklahoma Tax Commission Form 998.