Tax Update: The Latest From 5 States on Work to Exempt Military Pensions

Tax Update: The Latest From 5 States on Work to Exempt Military Pensions
Nuthawut Somsuk/Getty Images

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.

 

Arizona chapters of MOAA are planning to revive efforts to secure a break on military retiree state income taxes after moves to make the measure part of this budget cycle fell short.

 

“When the legislature returns to work, if at all this fiscal year, we will re-engage,” said Lt. Gen. John Regni, USAF (Ret), who serves on MOAA’s board of directors and is a member of the Luke Chapter of MOAA in Arizona.

 

A provision to partially exempt military retiree pension from state taxes was included in Gov. Doug Ducey’s executive budget, but it was one of several provisions shelved for a “skinny budget” Ducey signed in late March. The state legislature passed a slimmed-down funding bill before adjourning for at least three weeks as a health precaution.

 

[RELATED: MOAA’s Military State Report Card and Tax Guide]

 

The initial proposal would have saved more than 50,000 veterans an average of $900 annually, according to the governor’s office.

 

Regni said the governor and state legislature have since moved their focus to the COVID-19 response.

 

MOAA’s Northern Arizona Chapter and MOAA’s Arizona Chapter will work with other veteran service organizations to continue work on the proposal.

 

Almost every state that collects income tax offers at least a partial exemption for military retirees. MOAA’s Military State Report Card and Tax Guide tracks changes in these benefits, with full breakdowns of state tax policy available to Premium and Life members.

 

Nationwide Updates

Meanwhile, at least four other states are making progress on tax breaks for military retirees.

 

Nebraska: The legislature has advanced a bill that would exempt 50% of military retirement pay from state income tax, according to a report. The exemption plan, which covers about 13,000 veterans, could provide about $15 million annually in tax relief for military retirees. More votes are required before the bill reaches the governor's desk.

 

Georgia: Lawmakers have proposed a bill that would exempt 100% of military pension from taxes for all retirees age 59 or older in a given tax year. Younger retirees would receive a scaled exemption in 10% increments, with 58-year-olds getting 90% and those turning 50 in a given tax year receiving a 10% exemption.

 

Maryland: Gov. Larry Hogan announced he would introduce a bill that would exempt military retired pay from state income tax. The full exemption would follow legislation from 2018 that granted a 50% exemption on military retiree pensions to $15,000 and lowered the eligibility age to 55. 

 

California: State committees on Governance and Finance and Veterans Affairs are considering a bill to exempt military retirement pay from state income tax.

 

Other recent state tax breaks have been offered in North Dakota, which began full exemption on military pension starting in the 2019 tax year, and Indiana, which will phase in a full exemption over four years.

About the Author

Amanda Dolasinski
Amanda Dolasinski

Dolasinski is MOAA’s staff writer and covers issues important to veterans and their families, including health care, pay, and benefits. She can be reached at amandad@moaa.org. Follow her on Twitter: @AmandaMOAA