Is Military Retirement Pay Taxable? Which States Tax It

Is Military Retired Pay Taxable?

Military retired pay is fully taxable as ordinary income at the federal level. The IRS treats it the same as wages, so you must report it every year. Defense Finance and Accounting Service (DFAS) sends you a 1099-R form each January showing your gross retired pay and any federal tax withheld.

Your 1099-R: What Each Box Means

Your 1099-R from DFAS contains the information you need to file your federal return accurately.

• Box 1 (Gross Distribution): Your total retired pay before any deductions, including SBP premiums.
• Box 2a (Taxable Amount): The amount subject to federal income tax. If you receive CRSC, it is excluded here.
• Box 7 (Distribution Code): Code "7" means normal distribution from a retirement plan.
• Box 12 (State Tax Withheld): Any state income tax withheld, if applicable to your state.

You can access your 1099-R and update withholding anytime through myPay at mypay.dfas.mil. Use the federal withholding section to adjust your W-4P elections.

Federal Income Tax on Military Retirement

Federal tax on military retired pay follows ordinary income tax brackets — the same rates applied to wages and salaries. In 2026, the seven brackets run from 10% to 37%. Most E-7 retirees with 20 years fall in the 12% to 22% bracket depending on total household income.

You can request additional withholding in myPay to avoid a tax bill at filing. If you had less than $1,000 owed last year, you generally avoid an underpayment penalty.

CRSC vs. CRDP: Key Tax Difference

Combat-Related Special Compensation (CRSC) is completely tax-free, because it replaces a portion of retired pay with a disability payment tied to combat injury. You do not report CRSC on your return as income.

Concurrent Retirement and Disability Pay (CRDP) is different. CRDP restores retired pay that was previously offset by VA disability pay. Because it flows through DFAS as retired pay, CRDP is fully taxable at the federal level — just like regular retired pay.

If you are eligible for both, the tax difference can be significant. Veterans rated 60% or higher who qualify for CRSC may reduce their taxable income by choosing CRSC over CRDP in some situations. Consult a tax professional before switching.

Survivor Benefit Plan (SBP) Premiums

SBP premiums are deducted from your gross retired pay before your taxable amount is calculated — but only in specific situations.

• Spouse or child coverage: The standard SBP premium is 6.5% of your covered base amount (often stated as 22.75% of the SBP base, which is 55% of covered retired pay). These premiums are not deductible on your federal return if coverage is for your current spouse.
• Former spouse coverage under a divorce decree: Premiums paid under a court order for a former spouse may be deductible as alimony under pre-2019 divorce rules. Consult a CPA.
• SBP annuity payments to survivors: When a surviving spouse receives SBP annuity payments, those payments are taxable income to the survivor — not tax-free like VA DIC payments.

TSP Withdrawals and Military Retirement

Your Thrift Savings Plan balance is a separate income stream with its own tax rules.

• Traditional TSP withdrawals: Fully taxable as ordinary income in the year you take them. DFAS issues a 1099-R for TSP distributions.
• Roth TSP withdrawals: Contributions come out tax-free. Earnings are also tax-free if you are 59½ or older and the account has been open at least 5 years.
• TSP required minimum distributions (RMDs): Begin at age 73 under current law (SECURE 2.0). Roth TSP is not subject to RMDs after 2024.

Stacking retired pay, CRDP, and traditional TSP withdrawals in the same year can push you into a higher bracket. Many retirees do Roth conversions in low-income years before Social Security begins.

State Income Tax on Military Retired Pay (2026)

State tax treatment of military retired pay varies widely. As of 2026, here is how each category breaks down.

States With No Income Tax (All Retirement Income Is Tax-Free)

Nine states levy no individual income tax at all, so military retired pay faces zero state tax: Florida, Texas, Washington, Nevada, Wyoming, South Dakota, Alaska, and states with no tax on earned income (New Hampshire, Tennessee — both now fully exempt investment income too).

States With Full Military Retirement Exemption

Several states that do levy income tax fully exempt military retired pay: Alabama, Arkansas, Connecticut, Hawaii, Illinois, Iowa, Kansas, Louisiana, Maine, Maryland (for veterans 65+), Michigan, Mississippi, Missouri, Nebraska, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Utah, Virginia, Wisconsin (verify annually — statutes change).

States With Partial Exemption

States such as Colorado, Idaho, Minnesota, Montana, North Dakota, Oklahoma, Rhode Island, Vermont offer partial exemptions based on age, income, or years of service. The exempt amount and phase-out thresholds differ. Check your state's department of revenue for the current year's limits.

States That Fully Tax Military Retired Pay

A small number of states — including California — tax military retired pay the same as any other income with no special exemption for the military. If you retire and move to California, your full retired pay is subject to California's income tax rates (up to 13.3% for high earners).

Tips to Reduce Your Tax Bill

• File as a resident of a no-tax or full-exemption state if you genuinely domicile there.
• Elect Roth TSP contributions early in your career to build a tax-free bucket.
• If eligible, choose CRSC over CRDP in years when the CRSC amount is higher — and benefit from the tax-free treatment.
• Consider a Roth conversion ladder between retirement and age 62 when income is lower.
• Use myPay to set withholding accurately and avoid a big April surprise.

For a personalized estimate of your after-tax retirement income, use the Military Retirement Calculator. For a full overview of military retirement systems and eligibility, visit our Military Retirement hub. To understand how the Blended Retirement System affects your taxes, see our BRS Explainer.

Key Takeaways

• Military retired pay is federally taxable as ordinary income; DFAS reports it on a 1099-R each January.
• CRSC is tax-free; CRDP is taxable — knowing the difference can save thousands per year.
• More than 40 states offer full or partial exemptions on military retired pay as of 2026.
• Roth TSP withdrawals in retirement are tax-free; traditional TSP distributions are fully taxable.

State-by-State Military Retirement Tax Treatment (All 50 + DC)

Military retirement pay is fully taxable at the federal level. State treatment is where retirees can save (or lose) real money. Roughly half of U.S. states fully exempt military retirement pay from state income tax; a few more offer partial exemptions.

States that fully exempt military retirement pay (no state income tax on retirement pay)

• No state income tax at all (military retirement automatically untaxed): Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, Wyoming.
• Full military-retirement exemption (income tax exists but military retirement is 100% exempt): Alabama, Arizona, Arkansas, Connecticut, Hawaii, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina (for veterans with 5+ years service before Aug 12, 1989 or 20+ years total service), North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Utah, West Virginia, Wisconsin.
• The exact rules for "full exemption" states can vary — some require the retiree to be a specific age, or to have a minimum number of years of service. Check the state's Department of Revenue military-retirement bulletin for current-year specifics.

States with a partial exemption or income cap

• Georgia — exempts up to $17,500 of military retirement pay for retirees under age 62, up to $35,000 if the retiree has earned income over $17,500, and a much larger retirement-income exclusion at age 62+.
• Colorado — retirement pay is taxable, but retirees 55+ can exclude up to $20,000, and 65+ up to $24,000, of retirement income (all sources combined).
• Delaware — up to $12,500 retirement income exclusion at age 60+ (applies to military retirees).
• Idaho — full exemption for military retirees 65+ or disabled retirees 62+.
• Kentucky — exempts military retirement pay earned before 1998; post-1997 service portions are partially taxed.
• Maryland — exempts up to $12,500 of military retirement pay under age 55, and $20,000 at 55+.
• Montana — full exemption starting with the 2024 tax year for military retirement pay.
• New Mexico — phasing in a full exemption; $30,000 exempt starting 2024.
• Oregon — federal-military-retirement-only exemption phase-in, with limitations based on years of service before Oct 1, 1991.
• Vermont — up to $10,000 of military retirement pay exempt (income-tested).
• Virginia — expanded exemption in 2022; up to $40,000 exempt in 2026 for retirees 55+.

States where military retirement pay is taxed like other income

• California, District of Columbia — military retirement pay is fully taxable as ordinary income. If you're planning your retirement state and California/DC are on the list, model the actual tax impact carefully.

Rules change frequently. Before picking a retirement state based on tax treatment, verify current-year rules with the state's Department of Revenue. The lists above reflect widely-published 2026 treatment as of publication; state legislatures frequently expand or tighten exemptions.

Related

See our Military Taxes hub for active-duty tax topics, the Is VA disability tax-free? page (VA disability is fully exempt in every state), and our Military Retirement Calculator for an after-tax pay estimate.