How Is Military Retirement Taxed?

The taxation of your retirement pay depends upon whether it is based upon length of service, or disability. Understanding how your pay is taxed will aid you in determining how much, if any, tax should be withheld.

Significance

Military pay is treated differently from ordinary earnings in some areas, such as combat pay, but ordinary military retirement pay is treated as taxable pension pay and must be included on your Form 1040 on Lines 16a and 16b, or on Lines 12a and 12b on Form 1040A.

Taxation

The taxable portion of your military pension is subject to federal income tax withholding. If you need to initiate federal withholding, complete IRS Form W-4 to your payer. If you did not have tax withheld from your military pension, then you may need to make estimated tax payments to the IRS.

Exceptions

Military disability retirement pay should not be included as part of your income if it was the result of armed conflict, extra-hazardous service or while conducting war maneuvers.

References

• IRS: Publication 17; Military and Government Disability Pensions
• IRS: Topic 410; Pension and Annuities
• IRS: Publication 3; Armed Forces' Tax Guide