Which States Do Not Tax Military Retirement?
You retire from the military, and the state you settle in afterward decides how much of the pension you actually keep. Forty states do not tax a dollar of military retirement pay in 2026. Nine states tax part of it, limited by a dollar cap, an age, or your income. Two states reach most of it in full.
Forty states exempt it outright
Forty states tax none of it. Nine of those have no state income tax at all. The other thirty-one wrote a specific exemption into their own tax code.
Alabama has excluded it since 1989. Several exemptions are recent: Arizona from 2021, Indiana and South Carolina from 2022, and Connecticut, Minnesota and Rhode Island from 2023.
Utah works differently from the rest. Instead of excluding the income, it gives a nonrefundable credit. That credit offsets the state tax on it, at the flat 4.45% rate, which comes out the same for most retirees.
Nine states exempt part of it
These nine cap the exemption by a dollar amount, an age, or income.
| State | What is exempt |
|---|---|
| California | Up to $20,000 exempt per return through 2029, only under $125,000 of federal AGI single or $250,000 joint — a cliff, not a phase-out |
| Colorado | Under 55, up to $15,000 exempt. From 55, folded into the $20,000-$24,000 pension deduction shared with Social Security and IRA money |
| Delaware | Up to $12,500 exempt under 60; from 60 it shares the same $12,500 with IRA money |
| Georgia | Under 62, up to $17,500 exempt ($35,000 with Georgia earned income). From 62, folded into the $35,000-$65,000 retirement exclusion. A 2025 law may raise the under-65 amount; its effective year is unconfirmed, so this is not assumed here |
| Idaho | Counts toward the retirement benefits deduction from 62 (or any age if disabled), capped near the maximum Social Security benefit and reduced by Social Security received |
| Kentucky | Not fully exempt: shares the $31,110 per-person retirement exclusion with pensions and IRA money, though pay for service before 1998 is separately excludable |
| Maryland | Up to $20,000 exempt at 55+ ($12,500 under 55), separate from the general pension exclusion |
| New Mexico | Up to $30,000 exempt per retiree |
| Oregon | Exempt only for service before October 1991, pro-rated by months; pay for service after that date is fully taxable |
Below the line in each row, the pension is untaxed. Above it, the excess is ordinary income.
Vermont sits next to this group without quite joining it. Military retirement pay there is fully exempt up to $125,000 of federal income, then phases out by $175,000. The formula for that phase-out band is not public in enough detail to compute. A figure for that income range is left as not computed here, rather than guessed. Below $125,000, which covers most retirees, the pension is fully exempt.
Georgia's exclusion is still changing
Georgia is the one state here where the rule is genuinely in motion. The new version is not yet law in a form this site can compute.
Today, under 62, Georgia exempts up to $17,500 of military retirement pay. With more than $17,500 of Georgia earned income too, that rises to $35,000. From 62, military pay joins the state's regular retirement-income exclusion instead.
That exclusion is $35,000 a person at 62–64 and $65,000 at 65+. A 2025 law, House Bill 266, raises the under-65 exclusion to as much as $65,000. Sources disagree on whether that takes effect for the 2026 or the 2027 tax year, so this site does not assume either date.
A Georgia figure for a military retiree under 65 shows as not computed in the state study, until the effective year is confirmed. See Georgia's full page.
Two states tax most of it
Washington, D.C. taxes military retirement pay as ordinary income, the same as a salary. A $3,000 exclusion existed before 2015. It was not renewed, and every later bill to bring one back has failed.
Montana looks like it has an exemption and mostly does not deliver one. The subtraction is capped at half of the retiree's Montana wage or business income. A retiree with no Montana earned income keeps none of it. The full pension is taxed.
The federal government still taxes it everywhere
Every rule above is a state rule. Military retired pay is ordinary federal income in every state, taxed at the regular marginal rate. No federal exemption matches any of the state ones above. A $30,000 pension adds $30,000 to federal taxable income, the same way a part-time job would.
Keep that separate from VA disability compensation, a different payment under a different rule. VA disability compensation is exempt from federal and state tax everywhere, with no cap and no exception, under 38 U.S.C. 5301.
Someone who receives both owes tax on the retired-pay portion, under the rules on this page. The disability portion owes nothing, in every state listed here.
This page does not model Concurrent Retirement and Disability Pay or Combat-Related Special Compensation. Both are federal programs that restore part of retired pay reduced by a VA offset. They change the federal number, not any state rule above. This site has not verified either program.
Frequently asked questions
Does Virginia tax military retirement pay?
Fully exempt in 2026 at any age, according to Virginia Tax; the subtraction was capped at $40,000 for 2025. See Virginia's full retirement-tax page.
Does North Carolina tax military retirement?
Fully exempt from 2021 for retirees with 20 years of service or a medical retirement, which is nearly everyone drawing military retired pay. See North Carolina's full page.
Does Georgia tax military retirement?
Partly, and the amount depends on age: up to $17,500 exempt under 62, folded into a $35,000–$65,000 exclusion from 62. A 2025 law may raise the under-65 amount; its effective year is not yet confirmed. See the Georgia section above.
Does South Carolina tax military retirement?
Fully exempt from 2022, any age. See South Carolina's full page.
Does Alabama tax military retirement?
Fully exempt, any age, no cap (Code of Alabama 40-18-20). See Alabama's full page.
Does California tax military retirement pay?
Up to $20,000 exempt per return through 2029, only under $125,000 of federal AGI single or $250,000 joint — a cliff, not a phase-out. Above the income line, or after 2029 unless the exemption is renewed, it is fully taxable. See California's full page.
Does Arizona tax military retirement?
Fully exempt from 2021, any age, no cap. See Arizona's full page.
Does Maryland tax military retirement?
Up to $20,000 exempt at 55+ ($12,500 under 55), separate from the general pension exclusion. See Maryland's full page.
Does Kentucky tax military retirement?
Not fully exempt: shares the $31,110 per-person retirement exclusion with pensions and IRA money, though pay for service before 1998 is separately excludable. See Kentucky's full page.
More guides
Run the numbers
Printed from https://savingslast.com/which-states-dont-tax-military-retirement/ on . The figures reflect the inputs shown and the rules as published on that date.