Topic:
MILITARY PERSONNEL; INCOME TAX; RETIREMENT AND PENSION SYSTEMS; TAXATION (GENERAL); TAX EXEMPTIONS;
Location:
RETIREMENT AND PENSIONS SYSTEMS; TAX EXEMPTIONS - VETERANS;

OLR Research Report


February 4, 2005

 

2005-R-0131

MILITARY RETIREMENT INCOME AND STATE INCOME TAX

By: Veronica Rose, Principal Analyst

You want to know what states do not tax U.S. government military retirement income (pension).

Thirteen of the 42 jurisdictions that levy an income tax do not tax U.S. government military pension. They include Massachusetts, New Jersey, New York, and Pennsylvania in the Northeast.

Another 20 of the 42 jurisdictions, provide state tax exclusion for military pension. Three states—Kentucky, North Carolina, and South Carolina—fully exempt some military retirees' pension from tax and allow other military retirees an income exclusion (see Table 1).

Connecticut is among six states that do not exclude any portion of military retirement income from taxes. The others are: California, Nebraska, Ohio, Rhode Island, and Vermont.

Table 1 shows how all 50 jurisdictions treat military pension for tax purposes. In some cases, the retiree must meet a minimum age requirement or other criteria to qualify for exemptions.

Table 1: State Tax Exclusion for Military Pension (2005)

State

Military Retirement Pension Exempt from State Taxation

Amount of Exemption or Exclusion

Alabama

Yes

Full exemption (Alabama Department of Revenue at http://www.ador.state.al.us/)

Alaska

No state income tax

NA

Arizona

Income exclusion

Up to $2,500 exclusion (Ariz. Rev. Stat. 43-1022) (additional information at http://usmilitary.about.com/gi/dynamic/offsite.htm?site=http://www.revenue.state.az.us/)

Arkansas

Income exclusion *

Up to $6,000 (Ark. Code Ann. 26-51-307) http://usmilitary.about.com/gi/dynamic/offsite.htm?site=http://www.ark.org/dfa/

California

No

Follows federal rules

Colorado

Income exclusion *

Up to $20,000 for those age 55 to 65; up to $24,000 for those age 65 or older (Colo. Rev. Stat. 39-22-104)

Connecticut

No

Follows federal rules (Connecticut Department of Revenue Services)

Delaware

Income exclusion *

Up to $2,000 of any pension income for people under age 60; up to $12, 500 for people age 60 or older. http://www.state.de.us/revenue/PIT_FAQ.shtml

District of Colombia

Income exclusion

The lesser of $3,000 or the military retirement pay for people age 62 or older (D.C. Code Ann. 47-1803.02)

Florida

No state income tax

NA

Georgia

Income exclusion *

Up to $15,000 for those age 62 or older and are totally disabled (GA. Code Ann. 48-7-27)

Hawaii

Yes

Full exemption (Hawaii Rev. Stat. 235-7(a)(3))

Idaho

Income exlusion

Taxpayers age 65 and older or age 62 and disabled may exclude $19,920 (single filers) or $29,880 (joint filers) (Idaho State Tax Commission at http://www.tax.idaho.gov/Conformity_to_%20IRC_%202004.htm)

Illinois

Yes

Full exemption (35 ILCS 5/203) additional information at http://www.iltax.com/LegalInformation/letter/rulings/it/2000/ig000073.pdf

Indiana

Income exclusion

Up to $2,000 for retirees age 60 or over (single filers) and up to $4,000 for joint filers (additional information at http://www.in.gov/dor/individual/deductions.html#lottery)

Iowa

Income exclusion *

Exclusion of up to $12,000 (joint returns), and up to $6,000 (other returns) of military retired pay (Iowa Department of Revenue at http://www.state.ia.us/tax/educate/faqinc.html#13)

Kansas

Yes

Full exemption (Kansas Department of Revenue at http://usmilitary.about.com/gi/dynamic/offsite.htm?site=http://www.ink.org/public/kdor/)

Kentucky

Yes/Income exclusion *

Full exemption for people who retire before January 1,1998 ; for those who retire after this date, partial exemption

Louisiana

Yes

Full exemption (Louisiana Department of Revenue at http://www.rev.state.la.us/forms/publications/20162(6_04).pdf)

Maine

Income exclusion *

Up to $6,000 exclusion; amount reduced by Social Security benefits and railroad retirement benefits (Me. Rev. Stat. Ann. Tit. 36 5122(2)(M)) (Additional information at http://mainegov-images.informe.org/revenue/publications/alerts/oct00ta.pdf)

Maryland

Income exclusion *

Up to $2,500; must be at least age 55 on last day of taxable year and an enlistee at time of retirement. Amount is reduced by 50% of the amount by which federal adjusted gross income exceeds $17,500 (Md. Code Ann. Tit. 10 207) (additional information from Department of Revenue at http://usmilitary.about.com/gi/dynamic/offsite.htm?site=http://www.marylandtaxes.com/

Massachusetts

Yes

Full exemption (Mass. Gen. Laws Ann. Tit. 62 2(a)(2)(E) (additional information from

Massachusetts Department of Revenue at http://www.dor.state.ma.us/)

Michigan

Yes

Full exemption (Mich. Stat. Ann. 206 30) (additional information from Department of Treasury at http://www.michigan.gov/treasury/0,1607,7-121-24321-6440--F,00.html)

Minnesota

Income Exclusion *

$14,500 (single filers) and $18,000 (joint filers); taxpayer must be age 65 or older

Mississippi

Yes

Full exemption (Miss. Code Ann. 27-7-15)(additional information from Mississippi State Tax Commission at http://www.mstc.state.ms.us/taxareas/individ/rules/ireg704.pdf)

Missouri

Income exclusion

A $6,000 pension exclusion for single filers and $12,000 for joint filers is allowed for people earning below certain income limits (Missouri Department of Revenue at http://dor.mo.gov/tax/personal/faq/indiv.htm#q11)

Table 1: State Tax Exclusion for Military Pension (2005)

State

Military Retirement Pension Exempt from State Taxation

Amount of Exemption or Exclusion

Montana

Income exclusion *

There is a $3,600 exclusion, if adjusted gross income is less than $30,000. (Montana Department of Revenue at http://discoveringmontana.com/revenue/forindividuals/individualincome/calculationiit.asp)

Nebraska

No

Follows federal rules

Nevada

No state income tax

NA

New Hampshire

No state income tax

NA

New Jersey

Yes

Full exemption (N.J. Stat. Ann 54A:6-26)

New Mexico

Income exclusion *

Taxpayers age 65 or older may exclude up to $8,000 of income from any source ($16,000 for joint filers), if they earn less than $28,000 in any year)

New York

Yes

Full exemption (Tax Law 612)

North Carolina

Yes/Income exclusion *

Full exemption for persons with five years of creditable service as of August 12, 1989; otherwise a deduction of up to $4,000 ($8,000 for joint filers) is allowed (N.C. Gen Stat. 105-134.6 and North Carolina Department of Revenue at http://www.dor.state.nc.us/taxes/individual/benefits.html)

North Dakota

Income exclusion

An exclusion of up to $5,000 is allowed for people at least age 50; the amount must be reduced by any Social Security benefits the person gets (North Dakota state tax commissioner at http://www.state.nd.us/taxdpt/misc/faq/indincome/#mp4

Ohio

No

$200 retirement credit available (Ohio Department of Taxation at http://tax.ohio.gov/)

Oklahoma

Income exclusion

Up to $5,500 (Okla. Stat. Ann. Tit. 68 2358)

Oregon

Yes

Pre 1991 retirees fully exempt; post October 1, 1991 retirees may exclude a portion of their income using a specified formula (additional information from the Department of Revenue at http://egov.oregon.gov/DOR/PERTAX/faq-military.shtml)

Pennsylvania

Yes

Full exemption (72 P.S. 7301(d)(i) & (iii).

72 P.S. 7301(d)(iii); additional information at 

(more information at Department of Revenue at http://www.revenue.state.pa.us/revenue/cwp/view.asp?a=238&q=171013)

Rhode Island

No

Follows federal rules

South Carolina

Yes/

Income exclusion

Military retirement for service in the National Guard and Reserves for state or federal service is fully exempt; up to $10,000 is exempt for service in any other military component for taxpayer over age 65 and $3000 for tax payers under age 65

(South Carolina Department of Revenue at http://www.sctax.org/default.htm

South Dakota

No state income tax

NA

Tennessee

No state income tax

NA (State income tax only for dividends and interest income) (Tennessee Department of Revenue at http://www.state.tn.us/revenue/misc/hallfaq.htm#hall6)

Texas

No state income tax

NA

Utah

Income exclusion

Up to $7,500 for single filers and $15,000 (joint filers) over age 65; $4,800 for single filers and $9,600 for joint filers under age 65, depending on age (Utah Code Ann. 59-10-114))

Vermont

No

Follows federal tax rules

Virginia

Income Exclusion *

$6,000 for taxpayer age 62 – 64; $12,000 for tax payer age 65 or older

Washington

No state income tax

NA

West Virginia

Income exclusion

$2,000 or more depending on years of service (W. VA. Code 11-21-12)

Wisconsin

Yes

Full exemption (Wisconsin Department of Revenue, Publication 126 (11/04)). http://www.dor.state.wi.us/pubs/pb126.pdf

Wyoming

No state income tax

NA

Source: State statutes, state tax department websites, and NCSL State Personal Income Taxes on Pensions and Retirement Income: Tax Year 2003

* Amounts shown are retirement income exclusion, irrespective of the source; in most cases, the total exclusion may not be more than indicated from all exempt sources.

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