States That Don’t Tax Military Retirement Pay

Thirty-seven states impose no tax on military retirement pay. Nine of them have no state income tax at all, and 28 more specifically exempt military pensions from an income tax they otherwise levy. Roughly a dozen additional states offer a partial exemption that shields some of your pension. Only the District of Columbia taxes military retirement pay with no exclusion of any kind.

The Nine States With No Income Tax

If you live in one of these states, your military pension is safe automatically. There is no form to file, no exemption to claim, and no state return at all:

  • Alaska
  • Florida
  • Nevada
  • New Hampshire
  • South Dakota
  • Tennessee
  • Texas
  • Washington
  • Wyoming

New Hampshire once taxed interest and dividends, but that tax was fully repealed effective January 1, 2025. Washington imposes a capital gains tax on high earners above a threshold, but it doesn’t reach retirement pay, so military pensions remain untouched.

The 28 States That Fully Exempt Military Retirement Pay

These states do have an income tax, but they exclude military retirement pay from the taxable base entirely. You still file a return, and you still list the pension, but a subtraction line removes the full amount before tax is calculated. The end result is the same as living in a no-income-tax state: zero state tax on the pension.

  • Alabama
  • Arizona
  • Arkansas
  • Connecticut
  • Hawaii
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Louisiana
  • Massachusetts
  • Michigan
  • Minnesota
  • Mississippi
  • Missouri
  • Nebraska
  • New Jersey
  • New York
  • North Carolina (see conditions below)
  • North Dakota
  • Ohio
  • Oklahoma
  • Pennsylvania
  • Rhode Island
  • South Carolina
  • Utah
  • West Virginia
  • Wisconsin
1Soldier for Life. 2026-01 Check State Taxes Before Moving

Several of these exemptions are recent. Indiana, Nebraska, Oklahoma, and South Carolina all stopped taxing military pensions starting with the 2022 tax year. South Carolina’s exemption has no earned-income cap, making it a clean, unconditional exclusion.2South Carolina Department of Veterans’ Affairs. Claiming Military Retiree State Income Tax Exemption in SC

North Carolina Has Conditions

North Carolina’s exemption is not automatic for every retiree. If you had five or more years of creditable service as of August 12, 1989, your military retirement pay is fully exempt under the Bailey v. State settlement.3North Carolina Department of Revenue. Bailey Decision Concerning Federal, State and Local Retirement Benefits If you don’t meet that threshold, a separate deduction enacted in 2021 covers retirees who served at least 20 years or were medically retired under 10 U.S.C. Chapter 61.4North Carolina Department of Revenue. Important Notice: North Carolina Enacts New Deduction For Certain Military Retirement Pay and Survivor Benefit Plan Payments Retirees who separated before 20 years without a medical retirement, and who weren’t vested by 1989, don’t qualify for either provision.

States With Partial Exemptions

About a dozen states tax military retirement pay but let you shield a portion. Amounts range from $12,500 to $65,000, and several come with age or income restrictions that can matter a great deal for younger retirees drawing a pension in their 40s or 50s.

  • California allows up to $20,000 for retirees with federal AGI below $125,000 (single) or $250,000 (joint). The exemption began in tax year 2025 and runs through 2030.5Soldier for Life. State Tax Breaks Expand for Retired Soldiers and Survivors
  • Colorado allows up to $15,000 if you’re under 55. At 55 or older, you shift to the state’s regular pension and annuity subtraction, which has a higher limit.6Colorado Department of Revenue. Retired Servicemembers
  • Delaware allows up to $25,000 regardless of age, effective for tax years beginning January 1, 2026. That’s well above the standard pension exclusion of $2,000 (under 60) or $12,500 (60 and older) for non-military pensions.7Delaware General Assembly. SB 201 – Exclusion of Military Pensions From Taxable Income
  • Georgia allows up to $65,000 starting in tax year 2026, with no age requirement. Prior rules capped younger veterans at $17,500 and used age-based tiers.8Georgia Department of Veterans Service. Military Retirement Income Tax Exemption
  • Kentucky excludes up to $31,110 of pension income. Retirees with pensions above that may exclude more by completing Schedule P to calculate an exempt percentage.9Kentucky Department of Revenue. Military Exemptions
  • Maryland allows up to $20,000 if you’re 55 or older, or up to $12,500 if you’re under 55.10Maryland Department of Veterans Affairs. Retirement Pay and Pension Tax Deductions and Exclusion
  • New Mexico currently allows a $30,000 exemption. Legislation for a full 100% exemption starting in tax year 2026 has been introduced but may not yet be enacted.1Soldier for Life. 2026-01 Check State Taxes Before Moving
  • Oregon only allows a subtraction for retirement pay attributable to service before October 1, 1991. If your career spanned that date, the exempt percentage is calculated by dividing pre-October 1991 service months by total service months.11MyArmyBenefits. Oregon Military and Veterans Benefits
  • Vermont fully exempts the pension if your federal AGI is below $125,000. Between $125,000 and $175,000, the exemption is prorated. Above $175,000, there’s no exemption.5Soldier for Life. State Tax Breaks Expand for Retired Soldiers and Survivors
  • Virginia allows up to $40,000. The cap took effect in tax year 2025 and continues going forward.1Soldier for Life. 2026-01 Check State Taxes Before Moving

Idaho ties its retirement benefits deduction to age and disability status, with higher limits for filers 65 and older or those who are disabled and at least 62. The District of Columbia is the outlier: no exemption, no exclusion, full tax on military retirement pay.

Disability Retirement Pay Follows Different Rules

Everything above applies to regular longevity retirement pay. Disability retirement is on a separate track. If your retirement is based on a combat injury or service-connected disability, a portion or all of that income may be excluded from federal tax under 26 U.S.C. § 104(a)(4), which exempts pension amounts received for personal injuries or sickness resulting from active service in the armed forces.12Office of the Law Revision Counsel. 26 USC 104 – Compensation for Injuries or Sickness

Because that income never appears as taxable on your federal return, it typically doesn’t reach the state return either. If you receive Combat-Related Special Compensation or Concurrent Retirement and Disability Pay, review your Form 1099-R closely. The taxable amount on the form already reflects the federal exclusion, and your state filing should follow that figure.

Survivor Benefit Plan Payments Are a Separate Question

If you’re the surviving spouse or beneficiary of a military retiree, your Survivor Benefit Plan annuity is generally taxable at the federal level. State treatment varies. Some states extend their military retirement exemption to SBP annuities; others treat SBP as a separate policy question and don’t.

California’s partial exemption explicitly covers both retired pay and SBP annuities under the same $20,000 limit and income thresholds.5Soldier for Life. State Tax Breaks Expand for Retired Soldiers and Survivors North Carolina allows a deduction for SBP payments under 10 U.S.C. § 1447 as long as the deceased retiree would have qualified for the military retirement deduction, meaning they served at least 20 years or were medically retired.4North Carolina Department of Revenue. Important Notice: North Carolina Enacts New Deduction For Certain Military Retirement Pay and Survivor Benefit Plan Payments If SBP is part of your income, check whether your state’s exemption language names survivor annuities specifically or only covers direct retiree pension income.

Claiming the Exemption

In the nine no-income-tax states, there’s nothing to do. Everywhere else, the exemption is not automatic. You file a state return, and you take the subtraction. Skip that step and the state treats the pension as ordinary taxable income.

Your Form 1099-R is the anchor document. DFAS issues it annually, and it shows both gross distribution and taxable amount (which will differ if you have a disability exclusion). The taxable figure flows to your state return before the exemption is applied.13Defense Finance and Accounting Service. 1099R and W2 Tax Statement Requests Current and prior year 1099-Rs are available through the myPay portal. Keep your DD Form 214 accessible too. You usually don’t submit it with the return, but a state may request it to verify service length or retirement type when the exemption requires a minimum number of service years or a medical retirement.

The mechanics are similar across states. Your federal adjusted gross income populates the state return first. Then, in the subtractions or adjustments section, you enter military retirement pay as a deduction.14Illinois Department of Revenue. Additions/Subtractions for Individual Income Tax E-filing through a state portal or commercial tax software handles this automatically if the income source is identified correctly. On paper, double-check the subtraction line. Missing it is the most common way retirees overpay state tax on income the state doesn’t actually want to tax.

State laws in this area have been moving in one direction for years, toward broader exemptions and higher caps. Several partial-exemption states have legislation pending or recently enacted. If your state currently caps the exclusion, watch your legislature; the numbers keep going up.