Military Retirement and State Income Tax

Understanding how military retirement pay is taxed at the state level can make a big difference in your financial planning, especially when choosing where to settle after service. While the federal government taxes military retirement pay, many states either partially or fully exempt it, and some don’t tax income at all. Information on which states offer the most favorable tax treatment is what every military family should have.

Nine states including Florida, Texas, and Nevada do not tax personal income, while 28 others fully exempt military retirement pay. That includes family-friendly states like North Carolina, Missouri, and Illinois. Some states offer partial breaks depending on age or income. For example, Virginia is phasing in a full exemption by 2025 and lifting the age requirement, giving families more flexibility when planning for the future.

Several states have improved their benefits in recent years, New Mexico, South Carolina, and Oklahoma among them, showing a trend toward greater support for military families. Something to keep in mind: state tax rules are based on legal residency, not where the service member was last stationed. So when deciding where to live after retirement, those tax savings can add up quickly.

If you are making decisions about where to move next, now is the time to get informed. Update the veteran's state info with DFAS or the Coast Guard Pay Center to avoid withholding issues, and review states’ benefits. For the full breakdown, check out the article on Military.com at https://www.military.com/benefits/military-pay/state-retirement-income-tax.html?ESRC=mr_250602.nl&utm_medium=email&utm_source=mr&utm_campaign=20250602, and be sure share it with another military family planning their next step.