Wondering how military retirement pay is taxed in your state? This state-by-state guide on military retirement taxes breaks down which states fully exempt, partially tax, or fully tax military pensions. States like Florida and Texas offer full exemptions, while California still taxes 100%. Understanding these rules can save veterans thousands annually. Stay updated on tax changes in 2024–2025 and plan strategically to maximize your retirement income.
States That Do Not Tax Military Retirement Pay At All
Some states just skip the tax completely when it comes to military retirement. I call these “green light” states. If saving money is high on your list, these places could be worth checking out.
Full Exemption States:
| State | Tax on Military Retirement Pay |
|---|---|
| Alaska | No |
| Florida | No |
| Illinois | No |
| Nevada | No |
| New Hampshire | No (no income tax) |
| South Dakota | No |
| Tennessee | No (no personal income tax) |
| Texas | No |
| Washington | No |
| Wyoming | No |
| Pennsylvania | No |
| Mississippi | No |
| Alabama | No |
| Hawaii | No |
| New Jersey | No |
| New York | No |
| Michigan | No (some limitations apply) |
Picking one of these could drop your effective tax rate by thousands annually.
Say you retire at age 41 with a $40K pension. That’s $40K every year, for life, that’s either taxed—or not taxed—depending on where you’re parked.
Imagine pocketing 5-10% MORE every year just by choosing a tax-friendly home base. That’s real money.
States That Partially Exempt Military Retirement Pay
This is where it gets tricky. Partial exemption means some of your military retirement pay is safe from state tax, but not all of it. Rules vary. Think age, amount, or other personal stuff like disability.
Partial Exemption States Include:
- Georgia – Up to $65,000 exempt if you’re 62 or older (or permanently disabled)
- Connecticut – Phasing in 100% exemption over several years
- Oklahoma – Exempts up to 75% of retirement pay
- Montana – Limited exemptions only under specific guidelines
- Maine – $35,000 exclusion, increasing over time
- Colorado – Special subtraction for military retirees under age 55 and full exemption after 55
- New Mexico – Gradual phase-out of taxes for military retirees
So depending on your age and income levels, you could save—or not—depending on how your state treats things. The devil is in the details. That’s why you gotta plan with this stuff in mind.
States That Still Tax 100% of Military Retirement Pay
Yes, unfortunately, a handful of states still come after your full military pension like it’s game day. Zero exemptions. No mercy.
These include:
- California
- Vermont
- District of Columbia
- Virginia (though limits may apply)
Let me tell you a story.
One of my buddies finished up 22 years in the Navy. Took a nice pension, moved to California because he loved the weather. First tax season came and boom—hit with a 9.3% state income tax on every penny of his pension.
That’s over $3,700 a year gone—poof. Just because he crossed the wrong border.
I’m not saying “don’t move there,” but I am saying you better know what’s up before signing a lease or buying that house.
Things That Make a Huge Difference
These are the real-world levers that can seriously change your retirement income:
- Your age: Some states cut you a deal once you hit 60–65
- Disability rating: VA disability payments are always tax-free—federal and state
- Filing status: Married vs Single matters for exemptions and standard deductions
- Type of retirement: Are you collecting a VA pension or military retirement pay? They’re taxed differently
Keep these in mind when making moves.
Don’t Forget Federal Taxes Still Apply
Even if a state says “you’re good,” Uncle Sam still wants his bite.
Military retirement pay is taxed as regular income at the federal level. There’s no special break here unless you’re receiving tax-free disability compensation.
Now, is there a way to invest some of your pension into real estate tax-efficiently? 100%. We talked about that over on the reAlpha blog already. Worth a read if you’re looking at smart income moves.
What to Watch For in 2024–2025
Some states are changing their stance on military tax treatment. A few to track:
- Maryland: Governor has proposed boosting exemption for vets to $25K+
- Connecticut: May go to full exemption state-wide
- New Mexico: Already passed laws phasing out taxes by 2026
Before choosing a state, always double-check with a tax pro or use the real estate + retirement state comparison guide here to see how military retirement pay is taxed in each state.
FAQs
Military Retirement Pay State Tax Guide
Do all states tax military retirement?
No. Many states don’t touch military retirement income. Some partially tax it. A few (like California) tax it fully.
Is VA disability taxed?
Nope. Not federally. Not by the states. Completely tax-free.
Can I move to a no-tax state after retiring from the military?
Yes, and a lot of vets do. Texas, Florida, and Tennessee are fan favorites for this exact reason.
What if I split time between two states?
Where you officially reside (as shown by your voter ID, driver’s license, home ownership, etc.) is what matters. You gotta pick.
Conclusion
Choosing where to retire as a veteran isn’t just about lifestyle—it’s about maximizing your hard-earned benefits. This state-by-state guide on military retirement taxes highlights tax-friendly states that can help you keep more of your pension. Whether you opt for a full-exemption state like Florida or navigate partial tax breaks, understanding these rules is crucial. Stay informed on upcoming tax changes, consult a tax professional, and make a strategic move to secure your financial future.