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These Five States Just Eliminated Income Tax on Military Retirement


Serving in the military is a hard job, with many service members spending long lengths of time away from their family and putting their lives on the line. There are perks that come with service, though, and five states recently added a new one for veterans — eliminating taxes on military retirement income. They aren’t the first states to do this, but they are the most recent.

If you want help managing your retirement — whether you served in the military or not — consider finding a professional using SmartAsset’s free financial advisor matching service.

States Now Not Taxing Military Retirement Income

The latest states to pass a law to not tax military retirement income are:

  • Arizona
  • Utah
  • Indiana
  • Nebraska
  • North Carolina

The law takes effect immediately in Arizona and Utah and will come into effect for the 2022 tax year in Indiana, Nebraska and North Carolina.

Arizona and Utah military retirees may therefore see a large tax refund when they file their taxes this year for the 2021 tax year.

States that Already Did Not Tax Military Retirement

The following states already do not tax military retirement pay at all: Alabama, Connecticut, Hawaii, Illinois, Iowa, Kansas, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Missouri, New York, North Dakota, Ohio, Pennsylvania, West Virginia and Wisconsin.

Additionally, the following states only partially tax military retirement income, allowing for some credits or exemptions: Colorado, Delaware, Georgia, Idaho, Kentucky, Maryland, New Jersey, Oklahoma, Oregon and South Carolina.

Finally, some states don’t tax any income, including military benefits: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.

The Bottom Line

Military veterans in Arizona, Utah, Indiana, Nebraska and North Carolina no longer have to pay income tax on their military retirement benefits, joining a number of other states in not taxing these payments. Veterans in Arizona and Utah will be able to get refunds for the 2021 tax year, while the law takes effect for 2022 in the other three states.

Retirement Planning Tips

  • A financial advisor can help make saving retirement less stressful. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • The best way to plan for retirement is to use a workplace retirement plan like a 401(k) if you have access to one. If not, consider opening an individual retirement account (IRA).
  • Are you a vet looking for the best place to retire? Taxes may not be the only factor to consider. Take a look at SmartAsset’s study on the best cities for military retirees and our study on the best states for veterans.

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