State taxes on military retirement pay: the 2026 map
Your military pension is taxed the same way by the federal government no matter where you live — but the states are all over the map. Where you plant your flag in retirement can swing your after-tax pension by thousands of dollars a year. The good news is that the trend has been strongly in retirees’ favor: as of the 2025 tax year, 37 states don’t tax military retirement pay at all, and the list of full-exemption states keeps growing. Only California and Washington, D.C. still fully tax it. Here’s the full landscape — the no-tax nine, the full-exemption states, the partial-exemption rules, the recent changes, and a lookup for your state.
1. Federal vs. state
Start with the part that doesn’t vary: military retired pay is taxable at the federal level as ordinary income, reported on a Form 1099-R, no matter which state you call home. What varies — enormously — is whether your state piles on top.
Two crucial distinctions before the map. First, VA disability compensation is 100% tax-free everywhere, federally and in all 50 states — it is a different program from retired pay and is never taxed. Second, among the offset-related benefits, CRSC is tax-free while CRDP is taxable, because CRDP restores waived military retired pay. Keep retired pay and disability pay in separate mental buckets; only the retired-pay bucket is what states may tax.
2. The good news: 37 states
The headline is genuinely encouraging. As of the 2025 tax year, 37 states don’t tax military retirement pay at all. That breaks into two groups: nine states with no income tax of any kind, plus roughly 28 states that have an income tax but fully exempt military retirement pay.
The full-exemption list has grown fast — in just the last few years, states like North Carolina, Indiana, Nebraska, Rhode Island, and most recently South Carolina moved from taxing military pensions to fully exempting them. States have figured out that veteran retirees tend to be working-age, skilled, and economically active, and exempting their pensions is a cheap way to attract them. The result: a clear majority of the country now leaves your military pension entirely alone at the state level.
3. The no-income-tax nine
The simplest case is the nine states that tax no income, so your pension is automatically state-tax-free:
New Hampshire joined this group in 2025 after eliminating its remaining tax on interest and dividends. These states fund themselves through other means — often higher property or sales taxes — so “no income tax” doesn’t automatically mean “cheapest place to retire.” But for the specific question of your military pension, the answer in all nine is clean: zero state tax.
4. The partial-exemption states
Between “fully exempt” and “fully taxed” sits a group of states with partial exemptions — capped by a dollar amount, an age, or an income level. These are the ones where the details matter most:
| State | Partial treatment (2025 tax year) |
|---|---|
| Georgia | $65,000 exempt for any age (2026 tax year) |
| Virginia | Up to $40,000 exempt, age 55+ (phased in through 2025) |
| Kentucky | Up to $31,110 of retirement income tax-free |
| New Mexico | Up to $30,000 of military retirement tax-free |
| Maryland | First $12,500 exempt; $20,000 at age 55+ |
| Delaware | Up to $12,500 of pension excludable (any age) |
| Idaho | Tax-free at age 62+ or if disabled |
| Montana | ~50% deduction for the first 5 years, or age-based subtraction |
| Colorado / Oregon / West Virginia | Age- or service-based exclusions — verify the current cap |
In these states, whether you owe anything depends on your age, income, and pension size — so don’t assume; check the specific cap that applies to you.
5. How your state treats it
Select your state to see how it handles military retirement pay, and enter your pension to gauge the stakes against a fully-taxing state. Treatment reflects the 2025 tax year — always confirm with your state’s revenue department, since these rules change often.
Your state
Estimates only. “Tax here” for partial/taxed states is a rough figure using the comparison rate on the non-exempt portion; real state brackets vary. VA disability is never included. Verify with your state revenue department — rules change yearly.
6. The holdouts: California and DC
For years, California stood alone as the only state that fully taxed military retirement pay like any other income. That softened slightly in 2025: a new law lets eligible retirees exclude up to $20,000 of military retired pay (and qualifying survivor annuities), available to single filers with AGI under $125,000 or joint filers under $250,000, and currently scheduled through tax year 2030. Above those income levels, the exclusion phases out — so higher-income retirees in California still effectively pay full freight.
Washington, D.C. remains the other jurisdiction that fully taxes military retirement, at a progressive rate ranging from 4% to 10.75%, with no military-specific exemption. If you’re weighing either, run the numbers on an after-tax basis — the pension tax there can meaningfully shrink what a no-tax neighbor would leave in your pocket.
7. What changed recently
This landscape moves quickly, almost always toward more exemption. The most significant recent shifts:
- South Carolina (2025): moved from a partial exemption to a full exemption on military retirement pay — one of the largest single-state improvements in years.
- New Hampshire (2025): eliminated its tax on interest and dividends, becoming a true no-income-tax state.
- Georgia (2026 tax year): expanded its exemption to $65,000 for retirees of any age, up from narrower age-based limits.
- Vermont (2025): added a full exemption for retirees with AGI of $125,000 or less, with a partial phase-out above that.
- California (2025): enacted its first-ever exemption — the income-capped $20,000 exclusion above.
The trajectory is unmistakable: states keep competing to attract military retirees. If your state isn’t fully exempt today, it’s worth checking again each year.
8. Why this drives where vets retire
The dollars are real. On a typical $40,000–$60,000 pension, choosing a no-tax or full-exemption state over a fully-taxing one saves roughly $1,500–$3,500 a year — which compounds to somewhere around $15,000–$45,000 over a decade. For a military retiree who may collect a pension for forty years, the lifetime figure can dwarf that.
But tax treatment is one input, not the whole decision. Property taxes, sales taxes, overall cost of living, and proximity to bases, TRICARE, and VA facilities all matter, and a no-income-tax state with sky-high property taxes can erase the pension-tax savings. The right way to compare is on a total, after-tax, all-in basis — not the headline pension-tax line alone. If you’re also weighing survivor benefits or a military service buyback into a federal career, fold the state-tax picture into that larger plan.
9. Frequently asked questions
Is military retirement pay taxed by the states?
It depends entirely on the state. Military retirement pay is taxable at the federal level as ordinary income, but as of the 2025 tax year, 37 states don’t tax it at all — nine because they have no state income tax, and 28 more because they specifically exempt military retirement pay. Only California and Washington, D.C. fully tax it as regular income, and California now offers a limited partial exclusion for lower-income retirees. The remaining states offer partial exemptions based on age, income, or a dollar cap. Because the rules differ so much and change frequently, where you establish residency can swing your after-tax pension by thousands of dollars a year.
Which states don’t tax military retirement at all?
Two groups. First, the nine states with no income tax of any kind: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. Second, the states that have an income tax but fully exempt military retirement pay — a list that has grown to roughly 28 and includes Alabama, Arizona, Arkansas, Illinois, Indiana, Iowa, Michigan, Mississippi, Missouri, Nebraska, New Jersey, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Utah, Wisconsin, and many others. In both groups, a retiree pays no state income tax on their military pension.
Does California tax military retirement pay?
Yes, and it has long been the notable holdout — for years California was effectively the only state that fully taxed military retirement pay as ordinary income. That changed modestly in 2025: a new law allows eligible retirees to exclude up to $20,000 of military retired pay (and qualifying survivor benefits) from state income tax, available to single filers with adjusted gross income under $125,000 or joint filers under $250,000, and currently set to run through tax year 2030. Above those income levels the exclusion phases out, so higher-income military retirees in California still effectively pay full state tax on their pension.
Is VA disability compensation taxed by states?
No. VA disability compensation is 100% tax-free at both the federal and state level, in every state, regardless of where you live. It’s important not to confuse it with military retirement pay — they are different programs with different tax treatment. Military retired pay is taxable federally and may be taxed by your state; VA disability is never taxed. The same tax-free status applies to Combat-Related Special Compensation (CRSC), while Concurrent Retirement and Disability Pay (CRDP) is taxable because it restores waived military retired pay.
How much can I save by retiring in a tax-friendly state?
Potentially a great deal over a full retirement. On a typical $40,000 to $60,000 military pension, moving from a fully-taxing state to a no-tax or full-exemption state can save roughly $1,500 to $3,500 a year, and over a decade that compounds to anywhere from about $15,000 to $45,000 depending on the pension size and the state rate. That said, state income tax is only one piece — property taxes, sales taxes, cost of living, and proximity to bases and VA facilities all matter. Compare the total after-tax, all-in cost of living, not just the headline pension tax, before choosing where to settle.