State Tax Roundup: New Year Will Mean Big Tax Breaks for Thousands of Retirees

State Tax Roundup: New Year Will Mean Big Tax Breaks for Thousands of Retirees
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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.

 

Military retirees across North Carolina are celebrating new legislation that will exempt 100% of their retirement pay from income tax, effective for the 2021 tax year.

 

It’s a culmination of decades of advocacy by state veteran service organizations, including many MOAA members and the North Carolina Veterans Council, and residents hope it will mean an influx of new residents.

 

[UPDATED: MOAA's Military State Report Card and Tax Guide]

 

“I am calling it ‘The Come Back Home Campaign’ because so many people retired and did not stay in North Carolina,” said Col. Jeri Graham, USA (Ret), a North Carolina resident and member of MOAA’s board of directors. “They wanted to go live in a state that did not tax their military retirement.”

 

The legislation, signed by Gov. Roy Cooper on Nov. 18 as part of the state’s 2021 Appropriations Act, exempts income tax on military retirement pay for members of the armed forces who served at least 20 years or who medically retired. The law also exempts Survivor Benefit Plan pay for a beneficiary of a retiree.

 

The law applies to Coast Guard members, but does not apply to the commissioned corps of the U.S. Public Health Service or NOAA.

 

State Rep. John Szoka, a retired Army lieutenant colonel and MOAA life member, said he has fought for this legislation all five of his terms. It's "a very simple way to express gratitude from a grateful state," he said.

 

"North Carolina has prided itself as being the most veteran- and military-friendly state in the country. And I’ve always said, until we didn’t tax military retirement pay, that wasn’t entirely true." 

 

Indiana

Retirees in Indiana continue to see incremental tax breaks in retiree pay, but it’s building up to full exemption with the 2022 tax year.

 

Indiana agreed to a four-year transition to exempting all retiree pay, each year increasing the break by 25%. The 2021 tax year will see a 75% break in income tax, and the 2022 tax year will see the full benefit realized for all branches of the armed forces, including the Coast Guard.

 

“This has been a goal of ours for many, many years,” said Col. Andrew Gothreau, USA (Ret), president of MOAA’s Indiana Council of Chapters. “When we file taxes for 2022, it will be a 100 percent exemption.”

 

Virginia

Virginia’s governor-elect is calling for a bigger tax break for military retirees in the state. During the campaign, Glenn Youngkin promised a range of tax cuts, including a partial exemption for military retiree income. According to a Lynchburg, Va.-based ABC affiliate, Youngkin’s Day 1 plan calls for exempting up to $40,000 of military retiree pay from income tax.

 

Youngkin takes the oath of office Jan. 15.

 

In other Virginia tax news, MOAA’s Virginia Council of Chapters continues work to expand property tax exemption to more surviving spouses. Current law exempts surviving spouses whose loved one was killed by enemy while on active duty. The hope is to expand this exemption to spouses whose loved ones are killed in an accident or due to a medical condition while on active duty.

 

“Surviving spouses are a unique group that are not necessarily positioned to have a good income … and therefore helping this group is significant,” said Col. Monti Zimmerman, USA (Ret), who will take over as vice president of legislative affairs for MOAA’s Virginia Council in January.

 

The survivors’ property tax exemption is a priority of the Joint Leadership Council of Veterans Service Organizations, a nonpartisan advisory board that reports to the state’s governor, said Zimmerman, who represents MOAA on this council.

 

Nebraska

For more than 20 years, MOAA members and other veteran advocates in Nebraska lobbied for income tax exemption for military retirees. In 2022, they will finally have it in full.  

 

“We’ve lost more smart people and entrepreneurs that may have started here and built businesses,” said Col. Dan Donovan, USAF (Ret), president of MOAA’s Heartland of America Chapter. “We lost too many of them.”

 

The bill, which Gov. Pete Ricketts signed in May, follows a partial exemption signed by the governor last year.

 

“This is a great win for our state, for Nebraska’s job creators, and for military families looking to put down roots in Nebraska,” Ricketts said in May.

 

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About the Author

Tony Lombardo
Tony Lombardo

Lombardo spent 15 years working in journalism, most recently as the executive editor of Military Times. As director of audience engagement, he oversees online and print content teams for MOAA’s Communications Department. Follow him on Twitter.