This guide answers the question "which states don't tax military retirement" in plain terms. Planning for retirement after decades of military service means understanding exactly where your pension will stretch furthest. According to the U.S. Census Bureau's 2023 American Community Survey, more than 2 million military retirees live across all 50 states, yet their tax burdens vary dramatically by location.
Choosing the wrong state can cost you tens of thousands of dollars in unnecessary taxes over your retirement years.
The problem is that state tax laws change frequently, and outdated information circulates widely online. This guide breaks down the current landscape of which states don't tax military retirement, what partial exemptions look like, and how to evaluate your options with real data.
The Complete List of States With No Military Retirement Tax
The most straightforward answer to which states don't tax military retirement is that a growing number of states fully exempt military pension income. As of the 2024 tax year, the following states impose no state income tax on military retirement pay: Alabama, Alaska, Florida, Illinois, Iowa, Kansas, Louisiana, Mississippi, Nevada, New Hampshire, Pennsylvania, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Several other states fully exempt military retirement income even though they do tax other forms of retirement income. These include Arizona, Arkansas, Connecticut, Hawaii, Maine, Massachusetts, Michigan, Minnesota, New Jersey, New York, North Carolina, Ohio, Oregon, Utah, Vermont, Virginia, West Virginia, and Wisconsin.
The Tax Foundation's 2024 State Individual Income Tax Rates report confirms that this list continues to expand as states compete for retired military residents.
A practical example: a retired E-7 with 20 years of service receives approximately $30,000 annually in pension income. In a state like California that taxes military retirement, that retiree might owe several thousand dollars in state taxes each year. In any of the states above, that amount drops to zero.
How to apply this: pull up your most recent Leave and Earnings Statement (LES) or pension statement, calculate your total annual military retirement income, and check your current state's tax treatment against the full exemption list.
States With Partial Military Retirement Tax Exemptions
Not every state falls neatly into the "fully exempt" or "fully taxed" categories. Several states offer partial exemptions or deductions that reduce, but don't eliminate, your military retirement tax burden. Understanding these nuances matters because which states don't tax military retirement fully is only part of the picture.
Colorado offers a deduction of up to $20,000 for military retirement income for retirees under age 55, with higher limits for older retirees. Delaware provides a $12,500 exclusion for military retirees under 60, increasing to $25,000 for those 60 and older. Idaho exempts military retirement income for retirees over age 65, or those who are at least 62 and disabled.
Kentucky excludes up to $31,110 of military retirement income for the 2024 tax year.
Maryland allows a subtraction of up to $20,000 for military retirement income for retirees age 55 and older, with the amount increasing to $34,300 for those 65 and older. Nebraska exempts 40% of military retirement income for tax years 2022 through 2026, with a planned phase-in to 100% by 2027.
New Mexico exempts military retirement income for retirees age 62 and older, or those who are disabled.
How to apply this: visit your state's Department of Revenue website and search for "military retirement income exclusion" to find the exact form and current deduction limits for your filing status and age.
The Financial Impact of Choosing the Right State
The difference between living in a state that taxes military retirement and one that doesn't can be substantial. The U.S. Bureau of Economic Analysis reports that average state and local tax burdens range from under 6% of income in states like Alaska and Tennessee to over 12% in high-tax states like New York and Connecticut.
Consider a military retiree receiving $40,000 annually in pension income plus $20,000 in Social Security. In a state with no income tax, that retiree keeps the full $60,000. In a state with a 5% effective income tax rate that taxes military retirement, the retiree loses $3,000 annually just on pension and Social Security income.
Over a 30-year retirement, that's $90,000 in avoidable taxes.
The American Legion's 2023 Veterans Benefits Guide notes that military retirement pay is also subject to federal income tax, making state tax avoidance even more important for overall financial planning. Some states also offer property tax exemptions for disabled veterans and surviving spouses, which can add thousands more in annual savings.
How to apply this: use a retirement tax calculator like SmartAsset's Retirement Tax Calculator to compare your total tax burden in two or three states you're considering.
State-by-State Comparison Table
The table below compares key data points for evaluating which states don't tax military retirement and related financial factors.
| State | Military Retirement Tax | State Income Tax Rate | Property Tax Exemption for Veterans |
|---|---|---|---|
| Texas | Fully exempt | None | Up to $12,000 for 100% disabled |
| Florida | Fully exempt | None | Up to $5,000 for disabled vets |
| Tennessee | Fully exempt | None | Up to $175,000 for disabled vets |
| New York | Fully exempt | 4%–10.9% | Varies by county |
| Virginia | Fully exempt | 2%–5.75% | Up to $10,000 for disabled vets |
| California | Fully taxed | 1%–13.3% | Up to $224,000 for disabled vets |
How to apply this: circle the three states where you'd most likely relocate, then research each state's specific property tax exemption requirements on their official Department of Veterans Affairs website.
Recent Legislative Changes Affecting Military Retirement Taxes
State laws on military retirement taxation are not static. Since 2020, more than a dozen states have enacted new exemptions or expanded existing ones. The National Conference of State Legislatures tracks these changes annually and reports a clear trend toward more favorable treatment for military retirees.
Nebraska's phase-in to full exemption by 2027 represents one of the most significant recent changes. Indiana eliminated its military retirement tax entirely starting in 2022. Arizona expanded its military retirement exemption to cover all military pension income regardless of age in 2021. Kansas passed legislation in 2024 to fully exempt military retirement income beginning in tax year 2025.
The Defense Department's 2024 Demographics Report indicates that military retirees increasingly cluster in states with favorable tax treatment, with Florida, Texas, and Virginia consistently ranking among the top five states for retired military populations. This migration pattern reinforces the financial importance of the decision.
How to apply this: set a calendar reminder every January to check your state legislature's recent tax law changes, or subscribe to updates from Military.com's Pay and Benefits Center for reliable coverage of military retirement tax changes.
Frequently Asked Questions About which states don't tax military retirement
What if I live in one state but claim residency in another?
Military retirees can maintain legal residency in a state different from where they physically live. Your state of legal residence determines which state taxes your military retirement income. You must actually establish domicile in the new state by registering to vote, obtaining a driver's license, and changing your address with DFAS.
Simply claiming a tax-friendly state without taking these steps won't protect you from the old state's tax authorities.
Does the federal government tax military retirement pay?
Yes, military retirement pay is subject to federal income tax regardless of which state you live in. The IRS treats military pensions as ordinary income. You can reduce federal tax liability through contributions to traditional IRAs, health savings accounts, or charitable deductions. Some retirees also qualify for the Foreign Earned Income Exclusion if they live abroad.
Are disability payments from the VA taxed differently?
VA disability compensation is never taxed at the federal or state level. If you receive both military retirement pay and VA disability, the disability portion is tax-free everywhere. However, you may need to waive a portion of your retirement pay to receive VA disability, depending on your disability rating and years of service.
This creates a tax planning opportunity that many retirees overlook.
What about surviving spouses who receive military survivor benefits?
Surviving spouses receiving Survivor Benefit Plan (SBP) payments generally receive the same state tax treatment as the retiree would have received. In states that fully exempt military retirement income, SBP payments are also exempt. Some states like Oklahoma and South Carolina offer additional property tax exemptions for surviving spouses of deceased veterans.
Can I change my state of legal residence after retirement?
Yes, you can change your state of legal residence after retirement by establishing domicile in a new state. This requires physical presence, intent to remain permanently, and concrete actions like updating your voter registration and driver's license. The Defense Finance and Accounting Service (DFAS) provides Form DD-2058 to change your state of legal residence for tax withholding purposes.
Conclusion
Understanding which states don't tax military retirement is one of the most impactful financial decisions you can make after leaving service.
- More than 30 states now fully or partially exempt military retirement income from state taxes
- The financial difference between a tax-friendly state and a high-tax state can exceed $100,000 over a typical retirement
- State laws change frequently, so verify current rules before making relocation decisions
- Your state of legal residence, not physical location, determines your tax obligation
Your next step is to calculate your specific retirement income, review the current tax treatment in your state and any states you're considering, and consult with a tax professional who specializes in military retirement. The savings from one informed decision can fund years of travel, hobbies, or family support.
