If you’re a veteran thinking about retirement, here’s the deal: your military retirement pay is taxable by the IRS just like any pension.
But when it comes to state income tax, things get a lot more complicated — and some states are much tougher on your pension than others.
It’s totally normal to feel overwhelmed by the patchwork of state tax laws. You’re not alone if you didn’t realize your military retirement benefits might be taxed differently depending on where you settle down.
Choosing the right state can make a big difference in your monthly budget and financial peace of mind.
In this article, I’ll break down how various states tax military retirement pay, including some surprising exceptions. By the end, you’ll know which states are more veteran-friendly with their tax breaks and which ones could cost you more.
California: The Costliest State for Veterans’ Military Pensions
California stands out — and not in a good way — as the only state that fully taxes military retirement pay. That means your pension is treated just like any other retirement income and taxed accordingly.
The Golden State is known for high taxes overall, but this one really hurts veterans who expect relief.
Attempts to pass exemptions have stalled, so as of 2025, veterans pay state income tax on their military pensions in California, along with other taxable retirement income.
If you’re considering California, factor in this tax burden along with other state costs.
Colorado: Partial Exemptions Based on Age
Good news for Colorado veterans: the state offers partial exemptions on military retirement pay based on your age. If you’re under 55, you can subtract up to $15,000 from your taxable income through 2028.
Veterans 55 and older qualify for the state’s regular pension subtraction—$20,000 up to age 64, and $24,000 for those 65 or older.
Colorado also exempts Social Security benefits from taxes, making it a reasonably friendly place for veterans looking to stretch their retirement dollars.
Delaware: Small Exclusions, But No Tax on Disability Pay
Delaware taxes military retirement pay but offers modest income exclusions: $2,000 for veterans under 60 and up to $12,500 for those 60 and above.
A big plus is that military disability retirement pay is tax-exempt in Delaware, which can provide significant relief for disabled veterans.
Keep in mind, the city of Wilmington adds its own local income tax, so where you live within Delaware matters.
Washington D.C.: High Tax Rates with Limited Breaks
While not a state, Washington D.C. deserves mention because it fully taxes military retirement pay, much like California.
Tax rates here can be steep—up to 10.75% for some residents.
There’s a small exemption of up to $3,000 for veterans aged 62 and older, but that only applies to tax years before 2015. If you’re eyeing D.C., be prepared for a heavier tax bite on your pension compared to many states.
Georgia: Generous Exemptions for Military Retirees
Georgia is one of the more veteran-friendly states when it comes to pension taxes.
Veterans under 62 can exclude up to $17,500 of military retirement pay, and their spouses can too, potentially doubling the exemption to $35,000 for some married couples.
As you age, the exclusions increase—up to $65,000 for those 65 and older. Plus, Georgia doesn’t tax Social Security benefits, making it a solid choice for many retirees.
Idaho: Age and Disability Limitations Apply
Idaho only allows military retirement pay exclusions for those 65 or older—or 62+ with a disability. Last year, the maximum exclusion was about $41,140, but this amount adjusts annually, so check the latest figures if you’re considering Idaho.
Like many states, Idaho doesn’t tax Social Security or railroad retirement benefits, which helps ease the tax load somewhat.
Kentucky: Special Rules for Military Service Credits
Kentucky offers a retirement income exclusion of around $31,110, with special considerations for military pensions. If your military service was before 1998, that pension portion is 100% tax-exempt.
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Service after 1998 is taxed based on a worksheet calculation, which can reduce taxable income. Kentucky also exempts Social Security benefits, which adds to its appeal for veterans.
Maryland: Modest Military Pension Exemptions
Maryland increased its income exclusion to $20,000 for veterans 55 and older, but those under 55 get only $12,500.
The state also offers pension exclusions up to $39,500 for retirees 65 and older or those with disabilities. Social Security and railroad retirement benefits are tax-exempt in Maryland, helping retirees manage their tax bills.
Montana: New Partial Exemption for Veterans
Starting in 2024, Montana allows veterans to exclude up to half of their military retirement pay from state taxes, for up to five years.
To qualify, you must have become a Montana resident after mid-2023 or started receiving military income after moving there.
Tax rates on taxable income range from 4.7% to 6.5%, and while Social Security benefits are taxed, railroad retirement benefits are exempt.
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Other States with Notable Veteran Tax Policies
- New Mexico allows veterans to exclude up to $30,000 through 2026, with high income thresholds making Social Security tax unlikely for most.
- Oregon offers a 100% exemption for military service before October 1991 and partial exemptions otherwise. Social Security and railroad benefits are tax-exempt.
- Vermont has a small $10,000 exclusion but doesn’t allow you to claim it alongside Social Security benefits, making it less favorable.
- Virginia is increasing its military retirement income exclusion to \$40,000 starting 2025 and has removed the previous age restrictions.
Bottom Line
Deciding where to retire isn’t just about the weather or proximity to family—it’s about your financial future too. For veterans, state taxes on military retirement pay can dramatically impact your monthly income.
A few hundred dollars saved each month by picking a tax-friendly state can add up to real financial freedom. Before making your move, do your homework: check your state’s current military pension tax rules, and consider consulting a tax professional who understands veterans’ benefits.
Remember, the best retirement state for you balances lifestyle, tax advantages, and quality of life. Small steps in planning now can lead to big savings later.
This article was written by Loretta James. AI tools were used lightly for grammar and formatting, but the ideas, words, and edits are all mine.
