Which States Do Not Tax Military Retirement?

State taxation of military retirement income varies significantly across the United States, presenting a complex landscape for retirees. While federal taxation remains consistent nationwide, individual states determine how they tax pension income, including military retired pay. This variation can be a significant factor for military retirees when deciding where to establish their post-service residence.

States Exempting Military Retirement Income

Many states offer full exemptions for military retirement income. Nine states impose no state income tax: Alaska, Florida, Nevada, New Hampshire (effective 2025), South Dakota, Tennessee, Texas, Washington, and Wyoming. This means military retirement pay is not taxed in these states.

Beyond states with no income tax, 25 other states that levy an income tax fully exempt military retirement pay. These states include 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 Exemptions for Military Retirement

Some states provide partial exemptions or deductions for military retirement income, reducing the taxable amount. These exemptions often come with specific conditions related to age or income levels. California, for instance, will exempt $20,000 of military retiree or survivor benefit pay from state taxes starting in 2025, primarily for taxpayers with a federal adjusted gross income (AGI) of up to $125,000, or $250,000 for joint filers. Vermont introduced a tiered exemption for 2025, fully exempting military retirement pay for taxpayers with a federal AGI of $125,000 or less, with a proportional exemption for those between $125,000 and $175,000 AGI.

Other states also offer varying levels of partial tax relief. These exemptions often depend on factors like age, income level, or specific service dates. For example, Colorado allows retirees to deduct a portion of their military pension, with the amount increasing for those aged 65 and older. Georgia provides an exemption that varies by age. States such as Delaware, Idaho, Kentucky, South Carolina, and West Virginia also provide partial exemptions, though the specific amounts and conditions vary by state.

Understanding State Residency for Tax Purposes

Understanding state residency is fundamental because it determines which state has the authority to tax an individual’s income. Most states consider two main factors: domicile and statutory residency. Domicile refers to a person’s true, fixed, and permanent home, the place where they intend to return after any temporary absence. Individuals can only have one domicile, even if they maintain multiple residences.

Statutory residency typically involves meeting a physical presence test, such as spending more than 183 days within a state during a tax year. Even if an individual’s domicile is elsewhere, they might be considered a statutory resident and subject to income tax. States consider various factors when determining domicile and overall residency, including voter registration, driver’s license, vehicle registration, bank accounts, and professional licenses. Establishing a new domicile requires concrete actions and an intent to make the new location a permanent home. While active military members have protections under the Servicemembers Civil Relief Act regarding state residency, these protections generally cease upon retirement.

Additional State Tax Considerations

Beyond income tax on military retirement, retirees should consider other state taxes that can significantly impact their overall financial well-being. Even in states that fully exempt military retirement pay, other income sources, such as civilian pensions, investment earnings, or income from part-time employment, may still be subject to state income tax. Nine states, however, do not impose a general state income tax on any income, making them broadly tax-friendly for all types of retirement income.

Property taxes are another major consideration, as they are levied by local governments and can vary substantially even within the same state. Many states offer property tax relief programs or exemptions for seniors or disabled veterans. For example, veterans with a 100% service-connected disability rating are often eligible for full property tax exemptions on their primary residence in many states. Sales taxes, applied to goods and services, also contribute to the cost of living and vary by state. Four states, Delaware, Montana, New Hampshire, and Oregon, do not have a state sales tax.

Finally, a few states impose estate or inheritance taxes, which can affect the transfer of wealth after death. An estate tax is levied on the total value of a deceased person’s estate before assets are distributed, while an inheritance tax is paid by the beneficiaries who receive the assets. Maryland is unique in levying both an estate tax and an inheritance tax. Iowa is in the process of phasing out its inheritance tax, with full repeal expected by 2025. These varied tax structures mean that a state’s overall tax burden for retirees extends beyond just income tax on military pensions.