Is Military Retirement Considered Income for Social Security?

Receiving military retirement pay does not prevent you from collecting Social Security benefits, and you can receive both entitlements simultaneously. Social Security treats military retirement as a pension for past services, not as current employment income. Your military service can also increase the amount of your Social Security benefit.

The Social Security Earnings Test and Military Retirement

The Social Security Administration (SSA) uses an earnings test to determine if benefits should be reduced. This test applies only to individuals who claim Social Security before their full retirement age (FRA) and continue to work. For 2024, if you are under your FRA, your benefit is reduced by $1 for every $2 you earn above the annual limit of $22,320.

The earnings test considers “earned income,” which the SSA defines as gross wages from a job or net earnings from self-employment. It does not include income from other sources like investments, interest, or pensions. Military retirement pay falls into this latter category because it is considered a pension for past service.

Because military retirement pay is not classified as earned income, it is exempt from the SSA’s earnings test. This means the amount of your military pension has no impact on your Social Security payment, even if you start collecting benefits before your full retirement age.

How Military Service Affects Your Social Security Benefit Calculation

Your time in service can increase your Social Security benefits. Benefits are calculated based on your lifetime earnings in jobs where you paid Social Security (FICA) taxes. Your highest 35 years of indexed earnings are used in the calculation. To qualify for retirement benefits, you must have at least 40 credits, or 10 years of work.

To account for historically lower pay in the armed forces, special earnings credits may be added to your record for active duty. For service between 1957 and 1977, the SSA adds $300 in earnings for each calendar quarter of active duty basic pay. For service from 1978 through 2001, you are credited with an extra $100 in earnings for every $300 in active duty basic pay, up to a maximum of $1,200 in extra earnings per year.

These credits are added to your earnings record automatically when you apply for Social Security benefits. They can help fill in or replace low-earning years, potentially increasing your average lifetime earnings and leading to a higher monthly Social Security payment.

Taxation of Combined Benefits

The interaction between military retirement and Social Security becomes apparent when filing federal income taxes. Your military retirement pay is considered taxable income by the IRS and must be included in your adjusted gross income (AGI), which can affect whether your Social Security benefits are taxed.

The IRS uses a formula to determine the taxability of Social Security benefits based on your “combined income.” To calculate this, you take your AGI, add any non-taxable interest, and then add 50% of your Social Security benefits for the year. The total is your combined income.

If your combined income exceeds certain thresholds, a portion of your Social Security benefits becomes taxable. For individuals filing as single, if your combined income is between $25,000 and $34,000, up to 50% of your benefits may be taxable. If your combined income is over $34,000, up to 85% of your benefits could be subject to income tax. For those married filing jointly, the 50% range is $32,000 to $44,000, and the 85% threshold begins above $44,000.

Since military retirement pay is included in your AGI, it can push your combined income over these IRS thresholds. For example, a single individual with $30,000 in military retirement pay and $20,000 in Social Security benefits would have a combined income of $40,000 ($30,000 AGI + 50% of $20,000 Social Security). This places them above the $34,000 threshold, meaning up to 85% of their Social Security benefits would be taxable.