Pay up, sucka.

I’ve yet to find a one-stop-summary of State Taxation of Veteran’s Retirement benefits, so I created one here.

There’s plenty of internet finance articles on ‘best places to retire’ based on lots of factors, including state income taxes.

Mind you that all states need to fill potholes and pay for municipal services, so you are going to get taxed SOMEHOW- whether it is from a state income tax, sales tax, or property taxes.

But all things being equal, if you retire with grandkids in different states, local income taxes could sway your decision on which state to retire in (or declare your permanent residency in). Hopefully for Military and Federal retirees you are not choosing your state of residency because state income taxes end up being the difference between affording to eat human food or dog food in retirement.

Note This is not a list compiled from the Federal or State Tax codes, but combined from a few second hand sources. Do your own research to confirm your rates for your state.

So for those of you Veterans and Feds who are swayed by State Income taxation expense, here’s a comprehensive list of how your pay gets taxed, and some key takeaways.

Zero Income Tax States:
We’re already aware of who the zero-income-tax states are. You might have declared one of these as your ‘State of Permanent Residence’ if you were stationed in one during your Active Duty time.
The zero state income tax states area Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. Retire here and you are free from all State Income Taxes.

TSP/401k:
12 States (inclusive of the seven zero-state-income-tax states) do not tax your TSP or 401k withdrawals (assuming the withdrawals are not ‘early withdrawals’ as defined by the IRS and subject to penalty). The additional states are Illinois, Missisippi, New Hampshire, Pennsylvania, and Tennessee.

FERS Annuity:
14 States (including the seven zero-state-income-tax states) do not tax your FERS Retirement Annuity.

Social Security:
Most states (37 States plus DC) do not tax Social Security. The 13 states who do each use a state-specific formula that I will let you research on your own.

Military Retirement:
Many states (46) also exempt (or at least provide a partial exemption) for Military Retirement Pay. But there are five states/districts who tax Military Retirement Pay at full State Income Tax rates: California, DC, Utah, Vermont, and Virginia (unless you are a Medal of Honor awardee). Boo!

Here’s the summary table:

State Lowest Bracket Highest Bracket SS TSP/401k FERS Military Pension
Alabama 2% 5% I
Alaska 0% 0%
Arizona 2.59% 4.50% I I P*
Arkansas 2% 6.60% I I
California 1% 13.30% I I I
Colorado 4.63% 4.63% I* I I P*
Connecticut 3% 6.99% I* I I
Delaware 2.20% 6.60% I I P*
District of Columbia 4% 8.95% I I I
Florida 0% 0%
Georgia 1% 5.75% I I P*
Hawaii 1.40% 11% I
Idaho 1.12% 6.92% I I P*
Illinois 4.95% 4.95%
Indiana 3.23% 3.23% I I P*
Iowa 0.33% 8.53% I I
Kansas 3.10% 5.70% I* I I
Kentucky 5% 5% I I P*
Louisiana 2% 6% I I
Maine 5.80% 7.15% I I
Maryland 2% 5.75% I I P*
Massachusetts 5% 5% I I
Michigan 4.25% 4.25% I I
Minnesota 5.35% 9.85% I* I I
Mississippi 3% 5%
Missouri 1.50% 5.40% I* I I
Montana 1% 6.90% I* I I P*
Nebraska 2.46% 6.84% I* I I P*
Nevada 0% 0%
New Hampshire 5% 5%
New Jersey 1.40% 10.75% I I
New Mexico 1.70% 4.90% I* I I P*
New York 4% 8.82% I I
North Carolina 5.25% 5.25% I I P*
North Dakota 1.10% 2.90% I* I I
Ohio 2.85% 4.80% I I
Oklahoma 0.50% 5% I I P*
Oregon 5% 9.90% I I P*
Pennsylvania 3.07% 3.07%
Rhode Island 3.75% 5.99% I* I I P*
South Carolina 0% 7% I I P*
South Dakota 0% 0%
Tennessee 1% 1%
Texas 0% 0%
Utah 4.95% 4.95% I* I I I
Vermont 3.35% 8.75% I* I I I
Virginia 2% 5.75% I I *CMH
Washington 0% 0%
West Virginia 3% 6.50% I* I I
Wisconsin 4% 7.65% I I
Wyoming 0% 0%
*Income Formula *Partial Exclusions
CMH=Medal of Honor

Sources:
AARP: https://www.aarp.org/money/taxes/info-2020/states-that-tax-military-retirement-pay.html

(h/t) Tax-rates.org : http://www.tax-rates.org/taxtables/income-tax-by-state

Gov-Exec: https://www.govexec.com/pay-benefits/2021/04/states-wont-tax-your-federal-retirement-income/173194/print/


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