Nearly all U.S. states offer exemptions for military retirement income or do not tax it at all. As of 2024, California is the last state that fully taxes military retirement income.
Understanding your taxes is a big part of financial planning, whether you are in the midst of your career or are reaching your retirement years. Which parts of your income and how much they are taxed can greatly impact your financial planning and goals.
Additionally, staying informed about changes in tax laws and regulations is crucial as they can have a direct bearing on your overall financial strategy. Taking a proactive approach to tax planning can help you make informed decisions and optimize your financial well-being throughout your life journey.
Keep in mind this information is subject to change based on state laws
States With No Personal Income Tax
These nine states have no state income tax, which means no tax on military retirement income:
- Alaska
- Florida
- Nevada
- New Hampshire (institutes tax on interest and dividends)*
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
*New Hampshire taxes residents on interest and dividends but does not tax regularly earned income or pension income.
States That Don’t Tax Military Retirement Pay
In addition to the above states with no state income tax, many states exempt military retirement pay and/or pension income from state income taxes.
- 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
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas
- Washington
- West Virginia
- Wisconsin
- Wyoming
States That Partially Tax Military Retirement Pay
The following states partially tax military retirement pay or provide limited exclusions based on individual circ*mstances.
- Colorado
- Delaware
- Georgia
- Idaho
- Kentucky
- Maryland
- Montana
- New Mexico
- Oregon
- Utah
- Vermont
- Virginia
States That Fully Tax Military Retirement Pay
The following states offer no special tax treatment for military retirement pensions:
- California
Military Retirement Income Taxes By State
The following table shows income taxes on military retirement pay by state.
| State | Military Retirement Pay State Income Tax Info |
|---|---|
| Alabama | Military retirement pay exempt |
| Alaska | No state income tax |
| Arizona | Military retirement pay exempt |
| Arkansas | Military retirement pay exempt |
| California | No special tax treatment of military retirement pay |
| Colorado | Under 55 get exempt up to $15,000 through 2028. 55 and older can claim regular pension and annuity subtraction on the applicable line of the Colorado subtractions from the Income Schedule (DR 0104AD) |
| Connecticut | Military retirement pay exempt |
| Delaware | Under 60 can exempt $2,000. 60 and older can exempt $12,500. There is currently a bill, which if passed into law, would increase exemptions to $25,000 for all retirees |
| Florida | No state income tax |
| Georgia | Under 62 exemption up to $17,500. If they have earned income over $17,500, they may claim up to an additional $17,500. Veterans ages 62 to 64 are eligible for Georgia's existing retirement income tax exemption for up to $35,000. Over 65 are eligible for up to $65,000 |
| Hawaii | Military retirement pay exempt |
| Idaho | Married filing jointly: May exempt up to $60,210 if age 65 or older, or age 62 or older and disabled Single: May exempt up to $40,140 if age 65 or older, or age 62 or older and disabled |
| Illinois | Military retirement pay exempt |
| Indiana | Military retirement pay exempt |
| Iowa | Military retirement pay exempt |
| Kansas | Military retirement pay exempt |
| Kentucky | Allows a pension income exclusion of up to $31,110. You may be able to exclude more than $31,110 |
| Louisiana | Military retirement pay exempt |
| Maine | Military retirement pay exempt |
| Maryland | You or your spouse may be able to subtract up to $12,500 of your military retirement income for Maryland tax purposes. If you are 55 or older, you will be able to subtract $20,000 from your military retirement income. |
| Massachusetts | Military retirement pay exempt |
| Michigan | Military retirement pay exempt |
| Minnesota | Military retirement exempt. Must claim a deduction on state income tax return to determine exemption |
| Mississippi | Military retirement pay exempt |
| Missouri | Military retirement pay exempt |
| Montana | For up to 5 years after becoming a Montana resident, retirees may exempt the lesser of: 50% of retirement pay, as reported by DFAS OR Montana source income from (wages, salary, and tips from compensation |
| Nebraska | Military retirement pay exempt |
| Nevada | No state income tax |
| New Hampshire | Military retirement pay exempt |
| New Jersey | Military retirement pay exempt |
| New Mexico | $20,000 exempt in 2023. $30,000 exempt in 2024 through 2026. |
| New York | Military retirement pay exempt |
| North Carolina | Military retirement pay exempt |
| North Dakota | Military retirement pay exempt |
| Ohio | Military retirement pay exempt |
| Oklahoma | Military retirement pay exempt |
| Oregon | You may subtract your pension from Oregon income tax to the extent it was earned before October 1, 1991. Your entire pension is taxable if all of your service was after October 1, 1991. |
| Pennsylvania | Military retirement pay exempt |
| Rhode Island | Military retirement pay exempt |
| South Carolina | Military retirement pay exempt |
| South Dakota | No state income tax |
| Tennessee | No state income tax |
| Texas | No state income tax |
| Utah | Offers credits for military retirement pensions. |
| Vermont | Offers a $10,000 exemption for joint filers with income of $75,000 or less, or single filers with income of $60,000 or less. Cannot be combined with exemptions for other pensions (i.e. Social Security, CSRS, etc.) |
| Virginia | Exempts $20,000 for the 2023 tax year, $30,000 for the 2024 tax year and $40,000 for 2025 and later. |
| Washington | No state income tax |
| West Virginia | Military retirement pay exempt |
| Wisconsin | Military retirement pay exempt |
| Wyoming | No state income tax |
State Tax Burdens and Military Pension Tax Rates
Just because a state doesn’t tax your income doesn’t mean you aren’t affected in other ways.
A state’s “tax burden” assesses the overall financial burden placed on residents and businesses within that state. This rate includes various types of taxes, such as income taxes, property taxes, sales tax, corporate taxes, estate and inheritance taxes, and more.
A higher tax burden rate implies a larger share of a state’s economic output or residents’ overall income goes toward paying taxes. Another way to put it is: what percentage of your income is toward the state government?
The tax burden rate can vary significantly from state to state due to differences in tax policies, rates, exemptions, and deductions.
Here is a look at state tax burdens next to their taxing military retirement income policy.
Alabama
- Military pensions are fully exempt from Alabama income tax.
- Overall Tax Burden: 9.8%
Alaska
- No personal income tax in Alaska.
- Overall Tax Burden: 4.6%
Arizona
- Military pensions are fully exempt from Arizona income tax.
- Overall Tax Burden: 9.5%
Arkansas
- Military pensions are fully exempt from Arkansas income tax.
- Overall Tax Burden: 10.2%
California
- No special tax treatment for military retirement pay in California.
- Overall Tax Burden: 13.5%
Colorado
- Military pensions are partially exempt from Colorado income tax.
- Overall Tax Burden: 9.7%
Connecticut
- Military pensions are fully exempt from Connecticut income tax.
- Overall Tax Burden: 15.4%
Delaware
- Military pensions are partially exempt from Delaware income tax.
- Overall Tax Burden: 12.4%
Florida
- No personal income tax in Florida.
- Overall Tax Burden: 9.1%
Georgia
- Military pensions are partially exempt from Georgia income tax.
- Overall Tax Burden: 8.9%
Hawaii
- Military pensions are fully exempt from Hawaii income tax.
- Overall Tax Burden: 14.1%
Idaho
- Military pensions are partially exempt from Idaho income tax.
- Overall Tax Burden: 10.7%
Illinois
- Military pensions are fully exempt from Illinois income tax.
- Overall Tax Burden: 12.9%
Indiana
- Military pensions are fully exempt from Indiana income tax.
- Overall Tax Burden: 9.3%
Iowa
- Military pensions are fully exempt from Iowa income tax.
- Overall Tax Burden: 11.2
Kansas
- Military pensions are fully exempt from Kansas income tax.
- Overall Tax Burden: 11.2%
Kentucky
- Military pensions are partially exempt from Kentucky income tax.
- Overall Tax Burden: 9.6%
Louisiana
- Military pensions are fully exempt from Louisiana income tax.
- Overall Tax Burden: 9.1%
Maine
- Military pensions are fully exempt from Maine income tax.
- Overall Tax Burden: 12.4%
Maryland
- Military pensions are partially exempt from Maryland income tax.
- Overall Tax Burden: 11.3%
Massachusetts
- Military pensions are fully exempt from Massachusetts income tax.
- Overall Tax Burden: 11.5%
Michigan
- Military pensions are fully exempt from Michigan income tax.
- Overall Tax Burden: 8.6%
Minnesota
- Military pensions are fully exempt from Minnesota income tax.
- Overall Tax Burden: 12.1%
Mississippi
- Military pensions are fully exempt from Mississippi income tax.
- Overall Tax Burden: 9.8%
Missouri
- Military pensions are fully exempt from Missouri income tax. No tax on military retirement pay
- Overall Tax Burden: 9.3%
Montana
- Military pensions are partially exempt from Montana income tax.
- Overall Tax Burden: 10.5%
Nebraska
- Military pensions are fully exempt from Nebraska income tax.
- Overall Tax Burden: 11.5%
Nevada
- No personal income tax in Nevada.
- Overall Tax Burden: 9.6%
New Hampshire
- No personal income tax on pensions in New Hampshire.
- Overall Tax Burden: 9.6%
New Jersey
- Military pensions are fully exempt from New Jersey income tax.
- Overall Tax Burden: 13.2%
New Mexico
- Military pensions are partially exempt from New York income tax.
- Overall Tax Burden: 10.2%
New York
- Military pensions are fully exempt from New York income tax.
- Overall Tax Burden: 15.9%
North Carolina
- Military pensions are fully exempt from North Carolina income tax.
- Overall Tax Burden: 9.9%
North Dakota
- Military pensions are fully exempt from North Dakota income tax.
- Overall Tax Burden: 8.8%
Ohio
- Military pensions are fully exempt from Ohio income tax.
- Overall Tax Burden: 10.0%
Oklahoma
- Military pensions are fully exempt from Oklahoma income tax.
- Overall Tax Burden: 9.0%
Oregon
- Military pensions may be taxed in Oregon depending on your service dates
- Overall Tax Burden: 10.8%
Pennsylvania
- Military pensions are fully exempt from Pennsylvania income tax.
- Overall Tax Burden: 10.6%
Rhode Island
- Military pensions are fully exempt from Rhode Island income tax.
- Overall Tax Burden: 11.4%
South Carolina
- Military pensions are fully exempt from South Carolina income tax.
- Overall Tax Burden: 8.9%
South Dakota
- No personal income tax in South Dakota.
- Overall Tax Burden: 8.4%
Tennessee
- No personal income tax in Tennessee.
- Overall Tax Burden: 7.6%
Texas
- No personal income tax in Texas.
- Overall Tax Burden: 8.6%
Utah
- Military pensions are partially exempt from Utah income tax – see above table
- Overall Tax Burden: 12.1%
Vermont
- Military pensions are partially exempt from Vermont income tax – see above table
- Overall Tax Burden: 13.6%
Virginia
- Military pensions are partially exempt from Virginia income tax – see above table
- Overall Tax Burden: 12.5%
Washington
- No personal income tax in Washington.
- Overall Tax Burden: 10.7%
West Virginia
- Military pensions are fully exempt from West Virginia income tax.
- Overall Tax Burden: 9.8%
Wisconsin
- Military pensions are fully exempt from Wisconsin income tax.
- Overall Tax Burden: 10.9%
Wyoming
- No personal income tax in Wyoming.
- Overall Tax Burden: 7.5%
It should be noted that many of these states have a progressive income tax system, which means that the more income you make, the higher the tax. A state with a progressive state tax will have a higher tax burden overall.
To make the most informed decision, ensure you research a state’s individual sales taxes, property taxes, income taxes, and other state-specific taxes to paint the best picture and decide what most benefits your unique situation.
Military Retirement Pay and VA Disability Compensation
Military retirees pay federal taxes on retirement pay. However, some situations may impact your retirement pay. A common one is receiving VA disability compensation due to a service-connected disability rating.
VA disability compensation is a nontaxable benefit. However, receiving disability compensation can impact your retirement pay. Military retirees who have a service-connected disability rating of 50% or higher receive concurrent receipt. This has no impact on military retirement pay.
Those with a service-connected disability rating of 40% or less are ineligible for concurrent receipt and have their military pension reduced by the amount of disability compensation they receive from the VA. The amount from the VA is nontaxable.
The net effect is to receive the same amount of income. However, the portion from the VA is tax-exempt, which lowers your effective taxable income. There may be exceptions for retirees receiving combat-related special compensation (CRSC).
Just remember, taxes are only a small factor in your relocation decision. You should take a look at all the different priorities in your life and make the relocation decision that best suits you.
About Post Author
Forrest Baumhover
Forrest Baumhover is a Certified Financial Planner™ and enrolled agent. As a retired naval officer, Forrest helps veterans, transitioning service members and their families address the financial challenges of post-military life so they can achieve financial independence and spend more time doing the things they love.
Forrest sold his stake in an investment planning firm so he could spend more time with his family and do more of the things he wants to do. He writes financial planning articles online, which you can follow at his website, Teach Me! Personal Finance.
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