States That Exempt Military Pension From State Tax

Which States Don't Tax Military Retirement Pay?

As of 2024, over 30 states either have no state income tax or fully exempt military retirement pay from state income tax. That means many military retirees can keep their entire pension check without owing state taxes on it. The exact list depends on how each state classifies retirement income and whether special exemptions apply to veterans.

This matters because military retirement pay is fully taxable at the federal level. State-level exemptions can save retirees hundreds to thousands of dollars each year, especially in states with higher income tax rates. If you're planning where to live after leaving the service or you already live in a state that taxes your pension knowing the full list can directly affect your take-home income.

States With No State Income Tax

The simplest situation: nine states levy no personal income tax at all. Military pension is automatically exempt in these states because there's no state tax to apply:

Alaska
Florida
Nevada
New Hampshire (taxes only interest and dividends, not retirement income)
South Dakota
Tennessee (fully repealed its income tax on investment income as of 2021)
Texas
Washington
Wyoming

Washington state, for example, has no income tax at all, so military retirees pay nothing to the state on their pension. You can read more about Washington's veteran tax benefits and broader exemptions to understand what other advantages may apply there.

States That Specifically Exempt Military Retirement Pay

Beyond the no-income-tax states, a significant number of states with an income tax still fully or partially exempt military pension. Here are the most notable ones:

Alabama Fully exempts military retirement pay from state income tax.
Arkansas Exempts military retirement income up to a certain threshold, with partial taxation above that amount.
Hawaii Exempts a portion of military retirement pay, depending on age and filing status.
Illinois Fully exempts all retirement income, including military pensions, from state tax.
Iowa Military retirement pay is fully exempt from Iowa state income tax.
Kansas Exempts military retirement income for retirees who meet residency and service requirements.
Kentucky Exempts military retirement pay up to a set annual limit.
Louisiana Fully exempts military retirement pay from state income tax.
Maine Provides an exemption for military retirement income, though some amounts may still be taxable depending on total income.
Massachusetts Exempts military retirement pay for retirees who meet certain service criteria.
Michigan Fully exempts military retirement pay from state income tax.
Mississippi Fully exempts military retirement income.
Missouri Exempts military retirement pay, with partial exemptions depending on income level.
New Jersey Offers partial exemption on military pension income for qualifying retirees.
New York Provides a pension and annuity income exclusion that applies to military retirement pay.
Ohio Military retirement income is not taxed at the state level. Ohio also offers additional veteran tax credits worth exploring.
Pennsylvania Fully exempts military retirement pay from state income tax.
West Virginia Has been phasing in a full exemption for military retirement income.

This list is not exhaustive, and several other states offer partial exclusions, deductions, or credits that reduce the tax burden on military pensions. Always verify with your state's department of revenue or a tax professional, since exemptions can change with new legislation.

What Exactly Counts as Military Retirement Pay?

Military retirement pay includes the monthly pension received after retiring from active duty, the reserves, or the National Guard with enough qualifying years of service. It also covers:

Retired pay under the legacy High-3 or Final Pay systems
Blended Retirement System (BRS) pension payments
Temporary Early Retirement Authority (TERA) payments
Disability retirement pay (though this has separate federal tax rules)

It does not include VA disability compensation, which is already tax-free at both the federal and state levels. Mixing up VA disability pay with military retirement pay is one of the most common tax filing mistakes veterans make.

National Guard retirees have their own set of rules in some states. If you're a Guard retiree, check the specific state tax exemption eligibility for National Guard retirees, since some states treat Guard retirement differently than active-duty retirement.

Why Would a Military Retiree Move to a Tax-Exempt State?

Money is the obvious answer, but the math is worth walking through. Consider a retired E-7 with 20 years of service drawing roughly $2,500 per month in pension that's $30,000 per year. In a state like California, where the top income tax rate is 13.3% and even moderate income faces 6–9% rates, the retiree could owe $1,800–$2,700 per year just on pension income.

In Florida, Texas, or Pennsylvania? That number drops to zero.

Over a 30-year retirement, the difference between living in a high-tax state and a tax-exempt state could be $50,000–$80,000 or more in state taxes saved and that's only counting pension income, not withdrawals from a Thrift Savings Plan or other retirement accounts.

States That Tax Military Retirement Pay (And What You Can Do)

Some states still fully tax military retirement income. As of 2024, these include:

California
Colorado (offers some deduction but not a full exemption)
Connecticut
Georgia (taxes military pension but offers a retirement income exclusion)
Minnesota
Montana
New Mexico
North Carolina
Oregon
Rhode Island
South Carolina
Vermont
Virginia (offers a partial deduction for military retirees)

If you live in one of these states, you may still have options. Some states offer general retirement income deductions, credits for seniors, or property tax relief that indirectly offset the pension tax. Georgia, for instance, has retirement income exclusions and also offers property tax breaks you can learn more about Georgia's veteran property tax exemption rules.

How Do State Tax Exemptions Work With Other Veteran Benefits?

Military pension tax exemptions don't exist in isolation. Most states that exempt pension income also offer additional benefits to veterans. These can include:

Property tax exemptions Many states reduce or eliminate property taxes for disabled veterans or surviving spouses.
Vehicle registration fee waivers Some states waive registration fees for certain veterans.
Inheritance and estate tax protections A handful of states exempt veteran beneficiaries from inheritance and estate taxes.
State-level education benefits Tuition waivers or reduced rates at state colleges.
Homestead exemptions Reductions on the assessed value of a primary residence.

Stacking these benefits together creates a much larger tax advantage than looking at pension exemptions alone.

Common Mistakes Military Retirees Make With State Taxes

Assuming the state they retired in is automatically the best

Many retirees stay in the state where they were last stationed without checking whether it taxes their pension. Military-friendly states for active-duty personnel aren't always the best for retirees.

Forgetting about residency rules

Simply moving to a tax-exempt state isn't enough. Most states have residency requirements you typically need to establish domicile there for a full calendar year, change your driver's license, register to vote, and update your legal address with DFAS. States like California are known for aggressively auditing retirees who claim to have moved without fully relocating.

Confusing VA disability pay with retirement pay

VA disability compensation is not taxable at any level. Military retirement pay is federally taxable and may or may not be state-taxable depending on where you live. If you receive both, make sure your tax return separates them correctly.

Ignoring tax filing requirements in multiple states

If you moved mid-year, you may owe taxes in two states one for the portion of the year you lived there, and another for the rest. Some states give credit for taxes paid to other states, but not all do.

Overlooking local or city income taxes

A few cities and counties (like those in Maryland or Ohio) levy their own income taxes on top of state taxes. Even if your state exempts military pension, your city might not.

How to Verify Whether Your State Exempts Military Pension

Check your state's department of revenue website for the most current rules on military retirement income.
Look at the state's instruction booklet for individual income tax returns most states have a section specifically addressing military income.
Use the Military OneSource Tax Resource Center for state-by-state breakdowns.
Consult a tax professional who specializes in military tax situations, especially if you have income from multiple sources or live in a state with partial exemptions.
Review the DFAS retired pay information to understand how your pay is classified.

What If Your State Recently Changed Its Rules?

States update their tax codes regularly. A few recent changes worth noting:

West Virginia has been phasing in a full military retirement income exemption, with the amount of exempt income increasing each year.
Kentucky raised its exemption threshold for retirement income, including military pensions.
New York periodically adjusts its pension and annuity exclusion amount for inflation.

Legislation is introduced every year in multiple states to expand or reduce veteran tax benefits. Staying current requires checking once a year, ideally before filing your return.

Quick checklist before you file your next state return:

Confirm whether your current state of residence exempts military retirement pay (fully or partially).
Verify that your DFAS tax statement correctly separates taxable retirement pay from tax-free VA disability compensation.
Establish clear residency in your state of choice if you've recently moved get a new driver's license, register to vote, and update your address with DFAS.
Check whether your state offers additional veteran benefits like property tax exemptions or homestead deductions.
Watch for new legislation in your state that may expand or reduce military pension exemptions.
File in all states where you had a filing obligation during the tax year if you moved mid-year.
Consider talking to a CPA or enrolled agent who works with military families to make sure you're not leaving money on the table.