Introduction
Finding states that don t tax military retirement income is one of the smartest moves you can make before you hang up the uniform. Here's a fact that surprises many veterans: the number of states offering this benefit has grown over the past decade as lawmakers compete to attract former service members.
The problem is that the rules are scattered across dozens of state tax codes, and they change often. Some states exempt all retirement pay, others cap the exclusion by age or income, and a few have quietly repealed benefits they once advertised.
This guide breaks down which states qualify, how the exemptions actually work, and the practical steps you should take before you relocate.
What "No Tax on Military Retirement" Really Means
A state with no military retirement tax does not always mean zero state income tax overall. The phrase usually describes a state that either has no income tax at all or specifically exempts military pension income from its income tax base.
These two paths look identical on a pay stub but differ in practice. In a no-income-tax state, no retirement income of any kind is taxed. In a tax-exempt state, your pension is shielded while other income — like a civilian job or investment gains — may still be taxed.
The distinction matters when you plan a second career. A veteran who works part-time after retiring could owe state tax on wages even in a "military friendly" state.
- Full exemption states exclude all military retirement pay from state income tax.
- Partial exemption states cap the deduction by dollar amount, age, or years of service.
- No-income-tax states tax nothing, including pensions.
The Tax Foundation tracks state tax structures and is a reliable starting point for verifying current rules. How to apply this: list your projected income sources for your first year of retirement, then check which ones each candidate state would actually tax.
A state with no military retirement tax doesn't always mean you owe zero state income tax on everything else. Understanding states that don t tax military retirement helps you see the difference between a full exemption and a targeted one.
Nine states levy no personal income tax, so they automatically qualify as states that don t tax military retirement. These are the simplest options because the benefit requires no paperwork or eligibility review.
The States With No Income Tax at All
Nine states currently levy no personal income tax, which automatically means no tax on military retirement there. These are the simplest options because the benefit requires no paperwork or eligibility test.
The no-income-tax states are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire's status applies to wages and salaries but historically taxed interest and dividends, so confirm the current treatment before you move.
For veterans, these states offer certainty. There is no age threshold, no income cap, and no annual filing to claim an exclusion. Your pension arrives untouched by state withholding.
The trade-off is usually higher sales or property taxes. Texas, for instance, funds government largely through property and sales taxes, which can offset pension savings for homeowners.
A common scenario: a retiree moves from a state taxing pensions at 5% to Texas and saves thousands annually on a $60,000 pension, but pays more in property tax on a new home. Run both numbers before deciding.
How to apply this: use a state tax calculator or a CPA to model total tax burden — income, property, and sales — not just pension treatment.
Several states with an income tax still fully exempt military pensions, making them strong candidates for veterans. These states that don t tax military retirement have decided attracting retirees is worth the revenue they forgo.
Many states offer only a partial break, and that's where veterans most often get surprised. A state that partially qualifies as one of the states that don t tax military retirement might exclude just the first $10,000, $20,000, or $30,000 of pension pay.
States That Specifically Exempt Military Retirement Pay
Several states with an income tax still exempt military pensions in full, making them strong candidates for veterans. These states have decided that attracting retirees is worth the revenue they forgo.
States with full or broad military retirement exemptions have included Alabama, Arkansas, Hawaii, Illinois, Iowa, Kansas, Louisiana, Michigan, Mississippi, Missouri, and Pennsylvania, though details and eligibility vary. Some require a certain age; others exempt pensions for all retirees regardless of when they served.
Illinois, for example, exempts military retirement pay from state income tax for qualifying retirees. Pennsylvania does not tax military pensions for residents who meet its retirement income rules. These provisions are written into each state's tax code and can be amended by the legislature.
The catch is that "full exemption" sometimes comes with residency requirements or applies only to certain retirement systems. Always verify against the state's official revenue department rather than a blog or forum.
How to apply this: pull the current tax form instructions from each state's Department of Revenue website and search for "military retirement" to confirm the exclusion still exists.
Tax rules change with every legislative session, so verify current law before you commit to a move. A benefit advertised two years ago may be gone, so confirm which states that don t tax military retirement still hold that status today.
It depends on the state, since some extend the exclusion to Survivor Benefit Plan payments while others limit it to the retiree's own pension. Check the state's tax instructions to see whether states that don t tax military retirement extend that treatment to survivors.
States With Partial Exemptions and Age Limits
Many states offer a partial break rather than a full exemption, and these are where veterans most often get surprised. A partial exemption might exclude the first $10,000, $20,000, or $30,000 of military retirement income, or it might phase in at a certain age.
Some states tie the exclusion to age 62 or to the federal Social Security full retirement age. Others cap the benefit by total income, meaning a higher pension can disqualify you.
These rules create planning opportunities. If your pension is modest, a partial exemption may cover most or all of it. If your pension is large, the cap may deliver little relief.
| State Type | How It Works | What to Check |
|---|---|---|
| No income tax | No pension tax at all | Property and sales tax burden |
| Full exemption | Military pension fully excluded | Residency and eligibility rules |
| Partial exemption | Dollar or age cap applies | Current cap and phase-out thresholds |
| Taxable | Pension taxed like other income | Credits or deductions available |
How to apply this: calculate your exact annual pension amount, then compare it against each state's exclusion cap to see how much would actually be shielded.
Frequently not, because many states exempt standard length-of-service pensions but treat disability retirement differently. Confirm how your specific retirement category fits among states that don t tax military retirement, and remember VA disability pay follows separate federal rules.
Many states offer only a partial exemption, and those are the states that don t tax military retirement up to a set dollar cap.
How to Verify a State's Rules Before You Move
Tax rules change with every legislative session, so verifying current law is essential before you commit to a move. A benefit advertised two years ago may have been narrowed or repealed.
Start with the state's official Department of Revenue or tax commission website. Look for the current year's income tax instructions and search for "military retirement" or "retirement income exclusion."
Cross-check with a tax professional who prepares returns in that state. The IRS publishes guidance on how state tax treatment interacts with federal rules, which helps you understand the boundaries.
Timing matters too. Most states determine residency by domicile and days present, so a mid-year move can split your tax year between two states.
How to apply this: request a written summary from a CPA in your target state confirming the military retirement exclusion applies to your specific situation.
Always confirm current law because the list of states that don t tax military retirement can shift each legislative session. A benefit advertised two years ago may no longer apply to states that don t tax military retirement.
Some states that don t tax military retirement extend that exclusion to Survivor Benefit Plan payments as well. Others among the states that don t tax military retirement limit it to the retiree's own pension, so check the instructions.
Frequently Asked Questions About states that don t tax military retirement
Do I lose the exemption if I move mid-year?
Yes, in most cases. States typically tax income based on residency during the portion of the year you lived there, so a mid-year move splits your pension between two states. Plan the move date carefully and keep documentation of your domicile change. States that don t tax military retirement only protect income earned while you are a resident.
Does the exemption apply to survivor benefits?
It depends on the state. Some states extend the military retirement exclusion to Survivor Benefit Plan payments, while others limit it to the retiree's own pension. Check the state's tax instructions for language about survivor annuities before you rely on the benefit.
Many states that don t tax military retirement still treat disability retirement differently from standard pensions. Confirm how your specific retirement category is handled in states that don t tax military retirement.
Can I claim the exemption on a partial-year return?
Often yes, but the rules vary. Some states prorate the exclusion based on months of residency, while others deny it entirely for part-year filers. Review the part-year resident instructions for each state that appears on your list of states that don t tax military retirement.
Does disability retirement get the same treatment?
Frequently not. Many states exempt standard length-of-service pensions but treat disability retirement differently, and federal rules on VA disability pay are separate. Confirm how your specific retirement category is classified before assuming the state exclusion covers it.
What about states that tax only some retirement systems?
A few states exempt pensions from certain systems, such as those earned before a specific date or under a particular plan. This is common among states that don t tax military retirement for older retirees but tax newer ones. Read the effective-date language closely.
Conclusion
Choosing where to retire is one of the biggest financial decisions a veteran makes, and state tax treatment should be part of that math. Here are the key takeaways:
- Nine states have no income tax, which means no pension tax by default.
- Several income-tax states fully exempt military retirement pay.
- Partial exemptions often carry age or dollar caps that can shrink the benefit.
- Rules change often, so verify with the state's revenue department and a CPA.
Start today by listing your top three candidate states, then pull the current tax instructions from each one and confirm the exclusion still applies to your pension. A few hours of homework can protect tens of thousands of dollars over a retirement — and that is the real secret behind states that don t tax military retirement.
