Is your state still fully taxing military 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.
The Montana legislature is considering a 50% state tax exemption on retirement income for military retirees regardless of age, as well as surviving spouses – one of several states with bills in progress that could lessen the tax burden faced by military retirees.
Sponsored by state Sen. John Fuller, the Montana bill (SB 104) was approved by the Senate Taxation Committee 11-1 on Feb. 21 and is scheduled to be debated on the Senate floor in March. Current state law exempts less than $5,000 of retirement and surviving spouse income.
The bill would take effect Jan. 1, 2024, and sunset on Dec. 31, 2029. Fuller has drafted an amendment that would remove the sunset language.
“This bill could have a significant impact on retirees here,” said Col. Vanessa Berry, USA (Ret), vice president of the Western Montana MOAA chapter. “The cost of living has risen exponentially here, especially the housing.”
[RELATED: MOAA’s Military State Report Card and Tax Guide]
The chapter sent an email blast to its 100-plus members to encourage them to contact their senators and representatives about the legislation, Berry said. While Montana’s overall population is slightly more than 1.1. million, it has 84,430 veterans, according to the most recent U.S. Census Bureau data – one of the highest rates in the nation.
Vanessa and her husband, Col. Steven Berry, USA (Ret), joined their ranks when they retired and moved to Montana from North Carolina in 2018.
“The influx of veterans has been significant, and we have been there [to] witness it,” Steven Berry said. “Some of my buddies with the Ranger regiment have moved here since we have.”
If passed, the tax exemption would not apply to retirees from the commissioned corps of the U.S. Public Health Service or NOAA.
[RELATED: More Financial News From MOAA]
Colorado lawmakers want to preserve the state’s military retirement pay income tax exemption for those younger than 55 – which is set to disappear next year.
Current law exempts the first $15,000 in military retirement pay for those 54 or younger; pensions of all types in Colorado qualify for a $20,000 exemption for those ages 55-64 and a $24,000 exemption for those ages 65 and older. The proposed House bill would extend that exemption through the 2028 tax year.
The bill (HB23-1084) likely won’t be heard in the Appropriations Committee until after the state’s budget bill is introduced in mid-March, according to Colorado MOAA Legislative Liaison Lt. Col. Shelly Kalkowski, USAF (Ret).
[RELATED: Here’s How Servicemembers and Retirees Can Get Free Tax Help]
Kalkowski said she hopes the bill will not include a means test, which would reduce eligibility for exemption by placing a cap on retirement income. When the $15,000 exemption was adopted in 2018, the Colorado Senate removed a $40,000 military retirement pay cap placed on it by the House.
“There is a long way to go to keep a similar means test off the new bill,” Kalkowski said.
Survivor Benefit Plan payments are considered annuities and are exempt from Colorado state income tax.
Maryland legislators have introduced several bills that would increase the current tax exemption on retirement income for uniformed services veterans and surviving spouses.
The Keep Our Heroes Home Act, introduced in both the House and Senate at the behest of Gov. Wes Moore, would exempt $25,000 in the 2023 tax year and $40,000 in the 2024 tax year, and would remove age restrictions from the current law. The bill is being considered in committee in both chambers, and would cover commissioned corps members of USPHS and NOAA.
[RELATED: Understanding the ABCs of RMDs]
Other bills would make further changes to the retirement pay exemption, with some proposing to raise the exemption limit and others offering plans to make all military retirement pay tax exempt with incremental exemption increases over several years or in short order.
All uniformed servicemembers and surviving spouses in Maryland who are 55 and older now receive a tax exemption of up to $15,000 on their retirement pay or survivor benefit; those under 55 can claim up to $5,000. All retirees 65 and older, civilian and uniformed services alike, may be eligible to receive up to a $34,300 exemption under the Maryland Pension Exclusion.
The Oregon State Legislature is considering legislation that would fully exempt military retirement income starting in tax year 2024.
The bill (SB 515), introduced by Sen. Kim Thatcher, would not exempt commissioned corps members of USPHS or NOAA. It’s under consideration by the Senate Committee on Finance and Revenue, which held a hearing on the measure Feb. 1.
[RELATED: Cutting Your COLA: How ‘Chained CPI’ Would Reduce Your Military Retirement Benefit]
Sen. James Manning has also proposed a bill that would direct Oregon’s Department of Veterans’ Affairs to conduct a study and make recommendations for policy proposals regarding the taxing of military pensions.
Oregon currently exempts only years of military service performed before Oct. 1, 1991. Should a veteran have years of service before and after that date, they must calculate the number of months of service before Oct. 1, 1991, and divide it by the overall number of months served. For example, a veteran who worked 10 years before that date and retired in 2001 receives a 50% exemption on their state taxes.
MOAA’s Oregon State Council of Chapters supports both bills, said Council President Lt. Col. Tom Majchrowski, USAF (Ret). Majchrowski has spoken with both Manning and Rep. Dacia Grayber on tax exemptions for military retirees and encouraged his chapter presidents to reach out to their respective state representatives.
SB 515 has the support of the United Veterans’ Groups of Oregon, Majchrowski said, in addition to bipartisan support among legislators. `
[RELATED: What is IRMAA, and What Does It Mean for My Medicare Premium?]
A bill (H. 255) proposed by State Rep. William Canfield would eliminate military tax obligations for retirees and surviving spouses starting this tax year.
A second bill (H. 168), introduced by Rep. Robert Hooper, would increase the tax exemption for military veteran retirement pay from $10,000 to $15,000 for individuals with gross incomes of $50,000 or less ($65,000 or less for those married but filing a joint tax return). Those making between $50,000 and $60,000 ($65-75,000 jointly) will receive an exemption using a calculation based on the amount of federally adjusted income over $50,000.
Both bills are still being considered in committee. Gov. Phil Scott has already expressed his desire for military retirement pay to be fully exempt from state taxes.
Want to Help Servicemembers in Your Community?
Learn how you can make a difference with your local chapter.