The most tax-friendly states for military retirees fall into two groups: nine states that charge no individual income tax at all, and roughly 28 more that fully exempt military retirement pay from state taxation.1Soldier for Life. Planning a Move After Retirement? Check the State Taxes Between them, the majority of states won’t take a cut of your pension. But income tax is only one lever. Property tax breaks for disabled veterans, sales tax burdens, estate tax thresholds, and how each state handles VA disability pay, CRSC, and Survivor Benefit Plan annuities all shape what retirement actually costs where you land.
States With No Individual Income Tax
The simplest path to keeping every dollar of your pension is a state that doesn’t tax anyone’s income. Nine states currently qualify: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.1Soldier for Life. Planning a Move After Retirement? Check the State Taxes New Hampshire joined the list after repealing its tax on interest and dividend income effective January 1, 2025. You don’t file a state return for your pension, second-career wages, or investment gains in any of them.
The trade-off is how these states fund themselves. Washington and Tennessee rank among the highest combined state and local sales tax rates in the country, both above 9.5%. Texas leans hard on property taxes. Alaska has no state sales tax, but municipalities can impose their own, and cost of living runs steep across much of the state. Florida, Nevada, and South Dakota tend to offer a more balanced overall picture, which is why they consistently top relocation lists for retirees.
States That Fully Exempt Military Retirement Pay
A much larger group maintains a normal income tax but carves military retirement pay entirely out of the taxable base. As of tax year 2025, about 28 states provide this full exemption.1Soldier for Life. Planning a Move After Retirement? Check the State Taxes The full-exemption states include 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, West Virginia, and Wisconsin. Utah reaches the same result through a tax credit equal to 4.5% of military retirement pay, which offsets nearly all of the state’s 4.55% rate on that income.
You still file a return in these states to report total income, then subtract your pension to zero out the tax on it. The exemption protects the retirement pay itself. Second-career wages, rental income, and investment earnings remain taxable under normal state rules. That distinction matters when comparing two exemption states. Pennsylvania has a flat 3.07% rate and exempts most other retirement income too. Minnesota exempts your military pension but taxes other income at rates reaching nearly 10%. Same headline benefit, very different bill at the end of the year if you have income beyond the pension.
States With Partial Exemptions
About 13 states offer meaningful but limited relief, typically through dollar caps or income-based phase-outs.1Soldier for Life. Planning a Move After Retirement? Check the State Taxes Some cover the bulk of an average enlisted retiree’s pension. Others barely dent a higher-ranking retiree’s tax bill.
- Virginia allows a subtraction of up to $40,000 of military retirement pay.
- Georgia offers a retirement income exclusion of up to $35,000 for retirees ages 62 to 64, rising to $65,000 at age 65 and older.
- Kentucky excludes up to $31,110 of pension income, covering military and other public pensions alike.
- Maryland subtracts up to $20,000 for retirees age 55 and older, or $12,500 for those under 55.
- California provides a partial exemption of up to $20,000 for military retirement pay or survivor benefit annuities, available to single filers with federal adjusted gross income below $125,000 or joint filers below $250,000, running through tax year 2030.2Soldier for Life. State Tax Breaks Expand for Retired Soldiers and Survivors
- Colorado permits a subtraction of up to $15,000 for retirees under 55, with a higher general pension subtraction at 55 and older.
- Delaware excludes up to $12,500 regardless of age.
- Vermont fully exempts military retirement pay for filers with federal adjusted gross income below $125,000, then phases the exemption out between $125,000 and $175,000.2Soldier for Life. State Tax Breaks Expand for Retired Soldiers and Survivors
- Oregon only exempts the portion of retirement pay attributable to service before October 1, 1991, so for most current retirees, Oregon taxes nearly all of it.
Age-based thresholds are the part most people miss when running relocation math. Georgia looks mediocre for a 58-year-old retiree but becomes one of the better options at 65, when the exclusion nearly doubles. Run the numbers at your projected retirement age, not today’s. Also check whether the exemption applies specifically to military pensions or to all retirement income together. A general pension exclusion that also covers civilian 401(k) withdrawals may get consumed before your military pay even enters the calculation.
VA Disability, CRSC, and CRDP
VA disability compensation is completely tax-free at both the federal and state level. Federal law excludes disability payments from gross income for anyone receiving a pension or allowance for injuries or sickness resulting from active military service.3Office of the Law Revision Counsel. 26 USC 104 – Compensation for Injuries or Sickness The IRS confirms that disability compensation and pension payments paid to veterans or their families are not included in income.4Internal Revenue Service. Publication 525 (2025), Taxable and Nontaxable Income This applies in every state, so a high disability rating shifts your income tax comparison significantly.
The trickier piece is the two forms of concurrent pay that restore retirement benefits reduced by VA disability offsets. Combat-Related Special Compensation is tax-free. The Armed Forces Tax Council has determined that all CRSC payments are exempt from federal income tax under 26 U.S.C. ยง 104, and states follow the same treatment.5Department of Defense. Combat-Related Special Compensation Guidance Concurrent Retirement and Disability Pay is taxable. CRDP restores the portion of retirement pay previously waived to receive VA disability, and because it’s treated as retirement pay, it appears on your 1099-R and is subject to federal and state income tax.
Retirees who receive a retroactive VA disability rating increase can claim federal tax refunds for taxes paid on the portion of retirement pay that should have been classified as tax-free disability compensation.6VA News. Tax Season Guidance for Veterans The same applies to combat-disabled veterans switching from CRDP to CRSC. You generally have three years from the original filing date to amend, so check past returns if your rating recently changed.
Property Tax Breaks for Disabled Veterans
Property taxes are often the second-largest tax bill a retiree faces, and this is where a service-connected disability rating can save thousands each year. More than 20 states offer full or near-complete property tax waivers on a primary residence for veterans rated 100% permanent and total by the VA. Some of the most generous programs eliminate property taxes entirely regardless of home value.
Applying requires documentation: typically a DD Form 214 showing honorable service and a VA rating decision letter confirming the 100% disability. You file with your local county assessor or tax office, not the state. Deadlines vary but commonly fall between January and June of the tax year you’re claiming. Miss the window and you wait another full year, so mark the date as soon as you close on a home.
Even without a 100% rating, many states scale property tax reductions to disability percentage. A veteran rated 70% may qualify for a partial homestead exemption that lowers assessed value by a fixed amount. Because these benefits are managed locally, two counties in the same state can have different processes and timelines. Call the assessor’s office in the specific county where you’re buying before assuming the exemption applies.
Survivor Benefit Plan Considerations
Survivor Benefit Plan annuities are taxable at the federal level, and most states treat SBP payments the same way they treat the underlying military retirement pay. In a state that fully exempts military pensions, your surviving spouse’s SBP annuity is typically exempt as well. California’s partial exemption explicitly covers survivor benefit annuities alongside retirement pay.2Soldier for Life. State Tax Breaks Expand for Retired Soldiers and Survivors
Not every state handles SBP identically to retirement pay, though. Some partial-exemption states apply different dollar caps or age requirements to survivor annuities than to the retiree’s own pension. If you’re making relocation decisions with your spouse’s future finances in mind, verify that the specific state’s exemption language covers SBP or the Reserve Component Survivor Benefit Plan by name, not just “military retirement pay.” Overlooking this can leave a surviving spouse with an unexpected bill in a state you chose specifically for its military-friendly reputation.
Sales Tax, Estate Tax, and Other Costs
A state that exempts your pension can still be expensive if sales and property taxes run high. The nationwide average combined state and local sales tax rate is about 7.53%, but several states popular with retirees run well above that.7Tax Foundation. Sales Tax Rates Tennessee and Washington, both no-income-tax states, sit above 9.5%. Florida and Nevada land closer to the national average, part of why they rank well on overall retiree affordability rather than just income tax friendliness.
Estate taxes matter if you plan to stay long-term and have built significant wealth. The federal estate tax exemption for 2026 is $15,000,000, so most military retirees won’t owe federal estate tax.8Internal Revenue Service. What’s New – Estate and Gift Tax About a dozen states impose their own estate or inheritance taxes with much lower thresholds, sometimes starting around $1 million. Florida, Nevada, Texas, and Wyoming charge no state estate tax, making them attractive for retirees passing assets to the next generation.
Smaller perks add up. Many states waive vehicle registration fees or offer discounted plates for disabled veterans. Some extend sales tax exemptions to adaptive equipment or modified vehicles. None of these should drive a relocation on their own, but they round out the picture once you’ve narrowed the list.
Picking the Right State for Your Situation
No single state wins for every military retiree. The best answer depends on your disability rating, age, whether you’ll work a second career, and how much of your income comes from the pension versus investments or other retirement accounts. A 100% disabled veteran with no other income might do equally well in a full-exemption state or a no-income-tax state, since both produce the same net pension income, but the disabled veteran property tax waiver could tilt the decision toward a state that offers it.
A retiree planning a second career at $80,000 a year should pay attention to marginal rates on wage income, not just the pension exemption. A state that exempts your pension but taxes wages at 6% could cost more overall than one with a small pension cap and a lower flat rate. Run your complete projected income through each state’s tax structure before committing. Your state’s Department of Revenue website usually has a calculator or worksheet that estimates total liability.
One final point people forget: changing your state of legal residence isn’t just about updating your address with DFAS. You need to genuinely establish domicile through voter registration, driver’s license, vehicle registration, and actually living there. States you’re leaving can and do challenge residency changes that look like tax avoidance on paper but don’t reflect where you actually live. Get the paperwork right the first year, or you risk being taxed by both states.