9 states do not tax personal income
New Hampshire doesn’t tax wages but does tax dividends and interest
Tennessee doesn’t tax wages but does tax dividends and interest
20 states exempt military retirement income
8 states fully tax military retirement income
13 states tax a portion of military retirement income
The first $3,500 per year is tax free.
If you’re a veteran between the ages of 55 and 64, you can exclude up to $20,000 from your taxable income.
Those 65 and over can exclude up to $24,000.
If you’re under the age of 60, you can exclude up to $2,000.
Those over the age of 60 can exclude up to $12,500.
The state offers no special exemption for veterans but allows anyone who is permanently disabled or between the ages of 62 and 64 to exempt $35,000 of their retirement income. That number is $65,000 for those over age 65.
If you’re 65 or older — or disabled and at least 62 — your benefits are partially exempt.
The maximum amount varies from year to year and must be reduced by retirement benefits paid under the Federal Social Security Act or the Tier 1 Federal Railroad Retirement Act.
Up to $6,250 plus 25% of retirement pay over that amount is exempt for the 2019 tax year. That percentage will increase to 50% in 2020, 75% in 2021 and will be 100% for taxable years starting after 2021.
Up to $41,110 is tax-free.
The first $5,000 is tax-free, and that amount increases to $15,000 when you turn 55. Those over age 65, or who are totally disabled or who have a spouse who is totally disabled, may get additional tax breaks.
Within two years of leaving the military, you need to choose one of the following exemptions:
- 40% exclusion for the next seven tax years
- 15% exclusion for all tax years once you turn 67
Your decision is permanent.
You won’t be taxed at all if you served for at least five years prior to Aug. 12, 1989. Otherwise up to $4,000 is exempt.
Either 75% or $10,000 of your retirement pay is tax free, whichever is greater.
You may be eligible to deduct a portion of your retirement pay if you served before Oct. 1, 1991. If you didn’t, your military retirement is taxed normally.
If you’re under 65, your deduction is limited to $14,600 for the 2019 tax year, rising to $17,500 for 2020. You need to be earning other income to get this deal; otherwise only $3,000 will be exempt.
If you’re 65 or older, you can deduct $27,000 for 2019, rising to $30,000 for 2020, without any need for additional income.
The 10 least tax-friendly places
These nine states plus Washington, D.C. are the worst homes for military retirees based on high taxes and low exemptions, as ranked by the business and finance publication Kiplinger in 2018:
The Golden State has some of the highest taxes in the country, and military retirees suffer the full extent. So do private, local, state and other federal pensions.
This state fully taxes military pensions and other types of retirement income.
3. Washington, D.C.
Home to many government workers, Washington, D.C. still fully taxes people who choose to retire there.
This state does provide an exemption for pensions, but only for a few thousand dollars and only if your income is relatively low.
5. New Mexico
The Land of Enchantment holds no special appeal for veterans, and while people over age 65 can get a decent deduction, their income has to be low.
Retirees have it tough in Utah, and it’s not any easier for veterans. A couple tax credits of a few hundred dollars begin to dwindle as you earn above a certain threshold.
Military retirement pay is taxed as normal, though the state has a decent deduction scheme for all retirees.
8. Rhode Island
Retirees get some breaks in the Ocean State but can still get hit hard depending on how much they’re bringing in from different sources.
Veterans don’t get a deal in Georgia, but retirees do get a sizable discount off their income already.
10. North Dakota
While its tax rates are among the best in the country, they don’t get better for retired military personnel.