Is your state still fully taxing retirement pay? MOAA National serves in an advisory capacity for state-specific issues such as income tax exemption. Please contact your local MOAA council as state legislation must originate at the state level.
Advocates in two states have pledged to keep pushing to exempt military retiree pay from state income tax after the COVID-19 pandemic halted efforts.
Proposed legislation in Vermont, where military retiree pay is fully taxed at the state level, would have provided a full tax exemption. In Georgia, a lawmaker proposed a bill that would offer a phased-in exemption.
[NEWLY UPDATED: MOAA’s Military State Report Card and Tax Guide]
Legislation on exemptions in both states stalled when lawmakers ended sessions early to mitigate the spread of coronavirus.
In Vermont, state Rep. Daniel Noyes was able to get legislation for an exemption introduced by pegging it as an economic development strategy.
Noyes said the exemption, although decreasing state revenue, likely would have an overall benefit for the state because it would attract people who will spend money. It will also shore up the state’s aging workforce, which has been a challenged to fill emergency responder and firefighter jobs.
“Veterans are skilled workers who typically look for other employment opportunities after the military,” Noyes said. “This cohort of individuals coming out of the military is the kind of people we’d love to see immigrate to Vermont.”
There are about 3,900 military retirees eligible for a pension in Vermont. The average pension in Vermont is about $22,300, and state income tax can take up to 4%.
[RELATED: More Financial Resources From MOAA]
Vermont is one of the few states that doesn’t have a tax break for military retiree pay. The proposed move from full taxation to full exemption would mirror actions taken by North Dakota, which made the change starting with the 2019 tax year.
Meanwhile in Georgia, lawmakers proposed two bills in an effort to give military retirees a tax break. The first, which may not be reintroduced, would grant a full, immediate exemption, while the second would phase in an exemption over 10 years.
State Sen. Zahra Karinshak sent a bill that would grant the full exemption, which was originally introduced in the 2019 legislative session, to the Department of Audit and Accounts for review. She has not said if she will refile the bill.
That bill could result in state revenue loss of $80.5 million to $131.5 million, with retroactive pay from Jan. 1, 2019, according to fiscal researchers.
In a similar bill, an exemption would be phased in by 10% starting at age 50 and increasing 10% until age 59, when retirees would receive 100% exemption.
Col. Paul Wingo, USA (Ret), President of MOAA’s Georgia Council of Chapters, said every MOAA chapter in the state has been actively pursuing lawmakers to approve the exemption. Coronavirus wrinkled their efforts, but they will keep going, he said.
“I have been reassured by my particular senator it will be reintroduced next year,” he said. “We’re confident it will still be on the table.”
Georgia is home to about 91,262 military retirees, according to a report. About 55% of those retirees were age 62 or older and already subject to a tax exclusion that is granted for all Georgia taxpayers in that age range.
Wingo said a plethora of Georgia’s jobs are near bordering states Alabama and Florida, which are appealing to veterans because of breaks on income tax. Offering an exemption on state income tax would entice more veterans to choose Georgia, he said. And, just like Vermont, Georgia is looking for educated, talented people to bolster its workforce, especially in classrooms, hospitals, and airports.
“All the states around us have exemptions, so we’re trying to convince (legislators),” Wingo said. “We know the revenue the state would normally receive would be overcome by the number of soldiers retiring that we can keep.”
Other State Tax Law News
New Jersey: Military retired pay may be exempt in New Jersey, but active-duty servicemembers still pay taxes on combat pay and bonuses. Plans to exempt that pay are on hold, according to a recent report.
The tax exemption was part of a $40.8 billion spending bill Gov. Phil Murphy unveiled in February before the pandemic struck, but it has been deferred amid increased unemployment that caused tax revenues to fall.
The federal government already excludes compensation paid to personnel serving in designated war zones; New Jersey is believed to be the only state in the nation that still taxes the bonuses.
Maryland: Legislation that would have phased out the limitation on taxing a certain amount of military retirement income over several years stalled in April.
California: Legislation that would have exempt military retirement pay from state income tax was rescinded from the committee on veterans affairs in May.