State Tax Update: The Latest From 4 States on Exempting Military Pensions

State Tax Update: The Latest From 4 States on Exempting Military Pensions
Courtesy image via Air Force

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.


MOAA members in North Carolina are strategically maneuvering to advance legislation that would exempt military pension from state income tax.


Col. Ihor “Iggi” Husar, USAR (Ret), first vice president of MOAA’s North Carolina Council of Chapters, said all 15 state chapters are tracking two bills that would eliminate military pension from state income tax. He has led efforts to connect chapter members to the lawmakers in their districts to build more meaningful connections in hopes of passing the legislation.


“It’s much better to have a constituent calling to make an appointment to do advocacy,” Husar said. “It’s more effective this way.”


Participating members are encouraged to set up virtual meetings with lawmakers to advocate for the bills. The North Carolina council holds regular meetings to discuss progress, Husar said.


North Carolina House Bill 83 and its companion, Senate Bill 12, target tax exemptions for only military members. Other tax exemption bills in the state are broader, calling for tax exemptions for additional federal employees, and some state employees.


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


Some veterans in North Carolina already are exempt from taxes on their retirement benefits, qualifying under the so-called “Bailey exclusion.” The exclusion applies to any military retirement benefits (along with many other government-related plans) received by retirees with more than five years of creditable service as of Aug. 12, 1989, according to the tax office.


If passed into law, the full exemption would mean a revenue loss of about $32 million for the state, according to the North Carolina Center for Public Policy Research. However, Husar said he believes the exemption would be counterbalanced by an influx of veterans who would choose to retire in North Carolina and would pay other taxes and boost the local economy through spending.


“There is an offset that will ease the pain, so to speak, from the financial impact for the loss of revenue to the state,” Husar said. “The more people that retire to this state, the more disposable income the state can look at to generate more revenue for the state, but also, the spending power of these people who are either going to retire in North Carolina or are going to move to North Carolina. Overall, the state is going to benefit.”


Beyond the financial impact, Husar said military retirees could strengthen the workforce because they are skilled, trained, and educated. Servicemembers are generally more educated now because higher educational requirements are necessary for promotions, he said.


“We are excited,” Husar said, noting MOAA chapter efforts to push for the legislation. “We are determined.”


[RELATED: More Federal Tax Deadlines Extended Until May 17]


News on changes to military pension taxation in other states:



Veterans in Utah will be exempt from paying taxes on military retired pay beginning in the 2021 tax year, under a bill signed March 11 by Gov. Spencer Cox. The new law will provide an average annual tax savings of about $1,315 or about $23.8 million, according to the state’s budget office, and also exempts tax on the Survivor Benefit Plan.


Another exemption in the law will include some Social Security payments, but military retirees can claim only one new income exemption per tax return. Retirees with multiple sources of income will be allowed to exempt military retirement payments from the total income when filing taxes.


Lt. Col. David Houston, USMC (Ret), president of Utah’s Color Country Chapter, said MOAA members worked with other veterans groups to advocate for the bill in meetings with lawmakers.

“All of us were pushing as hard as we could to actually get this passed,” he said.


Houston said the change would be a big victory for the state, as it borders other states that offer exemptions. He noted how disappointing it was to learn Utah didn’t offer exemptions because he relocated from Nevada, where veterans enjoy full exemptions.



An exemption on military pensions is among several items covered by a wide-ranging tax bill passed by the Vermont House chamber last week. The bill started in the Senate with a narrow focus, but when it reached the House, legislators added several amendments, including a military retiree tax exemption.


Under the proposed bill, military retirees would be able to exempt the first $10,000 of their retirement pay from state income.


Vermont Rep. Lisa Hango said the exemption would level the playing field for Vermont, which is bordered on three sides by states that offer full tax exemptions for military retirees. Vermont is striving to be a place military retirees choose to live after their time in uniform, she said.


“We have more work yet to do to make Vermont more welcoming to separating servicemembers, but we see this legislation as a step in the right direction,” she said. “It is a step toward being able to retain servicemembers in retirement so they can start second careers, contributing to the economy of the state, often providing highly sought-after, specialized skills.”


Rhode Island

A bill that would lessen the tax burden of military retirees in Rhode Island reached the state’s Senate Judiciary Committee, where it will be held for further study.


Senate Bill 0159 would exclude the first $25,000 of military retirement income from state taxation for all those age 60 and older. If passed, the change would take effect in the 2022 tax year.


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About the Author

Amanda Dolasinski
Amanda Dolasinski

Dolasinski is a former staff writer at MOAA.