What States Do Not Tax Military Retirement?
Uncover how state tax laws apply to military retirement income. Gain clarity on varying state approaches and the critical role of residency for tax purposes.
Military retirement pay is income provided to former service members, typically after 20 or more years of service. This pay is subject to state-level taxation, with obligations varying significantly by state. Each state establishes its own income tax laws, determining how military retirement benefits are treated. These laws range from full exemptions to partial taxation or even full taxation.
States with Full Military Retirement Pay Exemption
Many states offer a full exemption for military retirement pay. Nine states have no state income tax, meaning they do not tax military retirement pay. These states include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire repealed its tax on dividend and interest income in 2025, joining the ranks of states without a personal income tax.
Beyond states with no income tax, twenty-five other states with an income tax fully exempt military retirement benefits. These states are 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.
States with Partial or Conditional Military Retirement Pay Exemption
Several states offer partial or conditional exemptions for military retirement pay. The nature of these exemptions varies, often depending on factors such as age, income level, or a specific dollar amount. For instance, Colorado allows retirees under 55 to deduct $15,000 of their military pension, which increases to $24,000 for those 65 and older.
Georgia provides an exemption of up to $35,000 for retirees aged 62-64, and up to $65,000 for those over 65. Maryland increases its exemption to $20,000 at age 55. New Mexico exempts up to $30,000 in military retirement pay, though this exemption may phase out for higher-income taxpayers.
California, as of the 2025 tax year, will exempt $20,000 of military retiree or survivor benefit pay for taxpayers with up to $125,000 in annual income, with a higher threshold for joint filers. This exemption is currently set to sunset before the 2030 tax year.
Other states, such as Idaho, Kentucky, Oregon, South Carolina, and Virginia, also provide varying levels of tax breaks. Idaho’s exemption for qualified retirement benefits can be up to $34,332 for single filers aged 65 and older, or 62 and disabled. Virginia is phasing in larger exemptions, with $30,000 in 2024 and $40,000 from 2025 onwards. Vermont implemented a tiered exemption for military retirement pay, fully exempting it for taxpayers with a federal adjusted gross income of $125,000 or less, with proportional exemptions for those between $125,000 and $175,000.
Understanding State Residency and Domicile
The distinction between “residency” and “domicile” is important for tax purposes for military personnel and retirees. Residency refers to where an individual physically lives, which can be temporary. Domicile represents an individual’s true, fixed, and permanent home, the place to which they intend to return even when absent. A person can have multiple residences but only one domicile at any given time.
For military retirees, their domicile is the primary factor determining which state’s tax laws apply to their military retirement pay. This applies even if they physically reside elsewhere for a period. The Servicemembers Civil Relief Act (SCRA) protects military pay from being taxed by any state other than the member’s state of domicile. A military member’s domicile does not change solely due to military orders.
Factors include voter registration, the state where a driver’s license is issued, location of property ownership, and the state where bank accounts are primarily held. Other indicators are where vehicles are registered, where children attend school, and exercise of state-specific benefits or obligations. Establishing clear intent and physical presence is crucial for changing domicile.