Tax Roundup: Big Movement in 3 States on Increasing Retired-Pay Exemptions

Tax Roundup: Big Movement in 3 States on Increasing Retired-Pay Exemptions
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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 state councils fighting to lessen the tax burden on military retirees have made some inroads in 2023. Here's a look at the latest from three states:


California: Bill Clears Key Committee

Thanks in part to the efforts of MOAA’s California Council of Chapters (CALMOAA), legislation that would exempt taxes on 100% of uniformed service retirement income and survivor benefits starting in 2024 made it through the California State Assembly Committee on Revenue and Taxation.


Before being heard by the California State Senate, the bill will have to go through the Assembly’s Appropriations Committee, where it died last year. CALMOAA hopes to sway Asssemblymember Chris Holden, the committee’s chair, to vote for the bill, said CALMOAA Legislative Affairs Vice-President Lt. Cmdr. Jeff Breiten, USN (Ret).


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


California is the only state that does not provide at least a partial tax exemption for military retirement pay, despite having one of the largest veteran populations. Assemblymember James C. Ramos introduced the exemption bill, AB 46, on Dec. 5.


Solano County MOAA vice-president Col. Steve Vancil, USAF (Ret), spoke in support of the legislation at the revenue and taxation committee meeting last month.


“The United States military is one of the world’s most diverse and tech-savvy workforces,” Vancil told the committee. “Active duty members are stationed here more than any other state. We have the most to gain by having them stay.”


California military retirees and surviving spouses receive an estimated $4.8 billion every year in retirement pay and Survivor Benefit Plan (SBP) benefits, according to a DoD study cited by Vancil to the committee. That money boosts the state economy, he said – and it would be lost if retirees and survivors move to states with friendlier tax laws.


“When military retirees leave, California loses the steady federal revenue stream their retirement provides into California's economy,” Vancil said. “With every other state offering an exemption, California has realized a steady decline in the military retiree population and the loss of federal dollars.” 


[RELATED: Be Ready for a Lower COLA in 2024]


The committee likely will determine the bill’s fate by month’s end, Breiten said. During the next few weeks, Breiten hopes to gain the support of California Gov. Gavin Newsom; CALMOAA members participated in a letter-writing campaign to Newsom in August.


“California Governor Newsom, who has been asked to support AB 46, has been silent on the issue and has made no public comments related to AB 46 or the fact that California is the only state in the nation that fails to provide an exemption on military retiree pay,” Breiten said. “We would love for him to tout the importance of passing this bill.”


Maryland: Bill Awaits Governor's Signature

Maryland’s retired uniformed servicemembers are on the verge of seeing a tax break after the state’s General Assembly passed the Keep Our Heroes Home Act.


Awaiting Gov. Wes Moore’s signature, the law would exempt the first $12,500 in uniformed service retirement income from state taxes for those 55 and under – a $7,500 increase from 2022. For those over 55, the amount exempted would increase from $15,000 to $20,000. These changes would take effect in the current tax year; the governor is expected to sign the bill, which was introduced to the state legislature at the request of his administration.


[RELATED: Understanding Retirement Income: How to Piece Your Plan Together]


For MOAA Maryland Council of Chapters Legislative Director Capt. Lynn Nash, USPHS (Ret), the exemption increases were nice but, unfortunately, were just a fraction of what was originally proposed by Moore. The original legislation would have removed age restrictions and increased the exemption to $25,000 in 2023 and $40,000 in 2024.


“Veteran retirees have been seeking a retired pay exemption in Maryland for 29 years,” Nash said. “Again this year we didn’t reach our objective of full exemption; however, we did get an incremental bump in the current subtraction and raised awareness of the fiscal contribution of veterans who stay in or relocate to Maryland. We hope that the comptroller will examine the fiscal contributions of veterans who seek a second career, and how those tax dollars would essentially pay for a full exemption for our retirees who have done so much.”


The bill would cover all armed services as well as retired pay earned by members of the commissioned corps of the U.S. Public Health Service, the National Oceanic and Atmospheric Administration (NOAA), or the U.S. Coast and Geodetic Survey.


Montana: 50% Exemption Heads to State House

The Montana State Senate approved a bill that would provide a 50% state tax exemption on retirement income for military retirees regardless of age, as well as surviving spouses.


SB 104 cleared the Senate in March and moved to the House, where it was approved by the Taxation Committee on April 14. The bill still must pass the full House and be signed by Gov. Greg Gianforte before becoming law.


If passed, it would become effective in tax year 2024.


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About the Author

Kipp Hanley
Kipp Hanley

Hanley is a former staff writer at MOAA.