After decades of service, military retirement pay represents financial security you’ve earned the hard way. But where you choose to live in retirement can dramatically affect how much of that income you actually keep.
Some states recognize military service by completely exempting military retirement pay from state income taxes, while others offer only partial relief or none at all.
“Choosing a tax-friendly retirement state can easily mean tens of thousands of dollars in lifetime savings for military retirees,” said by military finance planners.
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This guide breaks down:
- States with no income tax
- States that fully exempt military retirement pay
- States offering partial exemptions
- The only states that still fully tax military retirement pay
Overview: How States Tax Military Retirement Pay
| Category | Number of States |
|---|---|
| No state income tax | 9 |
| Full exemption with income tax | 29 |
| Partial exemptions | 11 |
| Fully taxable | 1 state + DC |
9 States With No State Income Tax
If you live in one of these states, your military retirement pay is automatically tax-free because there is no state income tax at all.
| State | Notes |
|---|---|
| Alaska | No income tax |
| Florida | No income tax |
| Nevada | No income tax |
| New Hampshire | Taxes interest/dividends only |
| South Dakota | No income tax |
| Tennessee | No income tax |
| Texas | No income tax |
| Washington | No income tax |
| Wyoming | No income tax |
“No income tax states offer the cleanest tax outcome no forms, no exemptions, no income thresholds,” explained by retirement tax specialists.
29 States That Fully Exempt Military Retirement Pay
These states do have an income tax, but they’ve chosen to completely exempt military retirement pay.
| States With Full Exemptions |
|---|
| Alabama |
| Arizona |
| Arkansas |
| Hawaii |
| Illinois |
| Indiana |
| Iowa |
| Kansas |
| Louisiana |
| Maine |
| Massachusetts |
| Michigan |
| Mississippi |
| Missouri |
| Nebraska |
| New Jersey |
| New York |
| North Carolina |
| North Dakota |
| Ohio |
| Oklahoma |
| Pennsylvania |
| Rhode Island |
| South Carolina |
| West Virginia |
| Wisconsin |
| Montana |
| Minnesota |
| Idaho |
“Veterans in these states should confirm DFAS withholding is set to zero to avoid unnecessary state tax deductions,” said by military tax advisors.
11 States With Partial Tax Exemptions
These states offer limited tax relief, often based on age, income, disability status, or year of retirement.
Partial Exemption Details
| State | Military Retirement Tax Treatment |
|---|---|
| Colorado | $15k–$24k exempt based on age |
| Delaware | $2k (<60), $12.5k (60+) |
| Georgia | Up to $65k (65+) |
| Idaho | $40k single / $60k joint |
| Kentucky | $31,110 exemption |
| Maryland | $5k (<55), $20k (55+) |
| New Mexico | Up to $30k exempt |
| Oregon | Only pre-Oct 1991 service |
| Utah | 4.85% tax credit |
| Vermont | $10k if income limits met |
| Virginia | $20k (2024), $30k (2025) |
“These partial exemptions still provide meaningful savings, but retirees must meet eligibility thresholds to benefit,” explained by state tax policy analysts.
States That Still Fully Tax Military Retirement Pay
Only one state still fully taxes military retirement income, along with the District of Columbia.
| Fully Taxable Locations |
|---|
| California |
| Washington, D.C. |
“California’s treatment of military retirement pay remains one of the least favorable in the country,” noted by veterans’ financial advocates.
Why This Matters for Military Retirees?
Taxes don’t just affect monthly income they affect:
- Long-term retirement security
- Cost-of-living sustainability
- Estate planning
A retiree receiving $3,000 per month could lose $2,000–$5,000 annually depending on state taxes.
“Where you retire can matter as much as how much you saved,” said by retirement income planners.
How to Maximize Your Military Retirement Pay?
- Confirm your state exemption eligibility
- Update DFAS state withholding
- Re-evaluate residency if relocating
- Consider total cost of living not just taxes
Final Thought
Military retirement pay is earned compensation not a bonus and protecting it should be a priority.
With 38 states offering full exemptions and many others providing partial relief, most retirees can significantly reduce or eliminate state taxes with the right planning.
“Smart location decisions can preserve retirement income for decades,” explained by military financial professionals.
FAQs
Do all states tax military retirement pay?
No. Most states fully exempt it, and only California and DC fully tax it.
Does VA disability compensation get taxed by states?
No. VA disability compensation is tax-free at both federal and state levels.
Do I need to file paperwork for exemptions?
In many states, yes especially those with partial exemptions.
Can I change my state of residence after retiring?
Yes, but residency rules vary and should be reviewed carefully.
Does DFAS automatically stop state tax withholding?
No. You must update withholding manually.
