Do I Have to Pay Taxes on Military Retirement Pay?

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Military retirement is taxed by the federal government like any other income earned during a tax year. Many states however, offer full exemptions of military retirement pay for state income tax purposes. Other states might offer partial exemptions of this type of income.

Federal Tax Rates For Military Retirement - Married Filing Jointly

  • Tax rates for military retirees will follow the same tax bracket system that nonretirees are bound to. Military retirement will be added to your regular earned wages to determine total taxable income for the calendar year. As of 2011, earned income up to $17,000 will be taxed at a 10 percent rate. Earned income between $17,001 and $69,000 will be taxed at a 15 percent rate. Income between $69,001 and $139,350 will be taxed at a 25 percent rate. Income between $139,351 and $212,300 will be taxed at a 28 percent rate. Income between $212,301 and $379,150 will be taxed at a 33 percent rate. Income exceeding $379,150 will be taxed at the highest variable rate of 35 percent.

Federal Tax Rates For Military Retirement - Single

  • Single retirees will have their annual tax obligation determined by the same formula as civilians. Military retirement will be added to your civilian earned wages to determine total taxable income for the calendar year. Income up to $8,500 will be taxed at a 10 percent rate. Income between $8,501 and $34,500 will be taxed at a 15 percent rate. Income between $34,501 and $83,600 will be taxed at a 25 percent rate. Income between $83,601 and $174,400 will be taxed at a 28 percent rate. Income between $174,401 and $379,150 will be taxed at a 33 percent rate. Income exceeding $379,150 will be taxed at the highest variable rate of 35 percent.

States With No Income Tax

  • Living in certain states will allow you to keep a little extra of that income in your pocket. Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming all have no state income tax. This also means that if you work as a civilian after retiring from the military, you will not have to pay state taxes on those earnings either. New Hampshire and Tennessee have state income tax, however it only is levied on interest and dividends.

States That Exempt Military Retirement

  • Residing in certain states that have a general income tax could also benefit a military retiree. Alabama, Hawaii, Illinois, Kansas, Louisiana, Massachusetts, Mississippi, New York, Ohio, Pennsylvania, and Wisconsin have all exempted military retirement pay from state income tax. If you live in Kentucky and retired before 1998, you will be exempt from state income tax. If you live in New Jersey, your military retirement is considered exempt from state income tax at age 62. New Jersey offers a partial exemption of $4,000 for a single filer or $8,000 for a joint filer.

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