Vet State Income Tax
State-by-State Exemption Assessment
You might be able to claim a deduction on your
state tax return that you canít on your federal;
for example, a few states, like Illinois, exempt
all or part of military income. Your state tax
return will spell out all the additions and
deductions you must make. Income from
investments can vary widely at the state level,
For example, some states donít differentiate
between ordinary income and capital gains (the
latter typically is taxed at a lower federal
rate), while others might tax sales of mutual
funds but not individual stocks. Seniors often
receive favorable treatment regarding their
state tax bills. Retirement income ó military or
otherwise ó may be fully or partially exempt;
even your capital gains may be tax-free. Local
homestead exemptions may give the elderly a
break on their property taxes, which is often
the largest tax bill for retirees who no longer
generate income from a job. Following are the
vet income exemptions for those states that do
Up to $2,500 of retired pay/survivor
benefits are exempt.
Up to $6,000 of retired pay/survivor
benefits are exempt.
$20,000 exemption for retirees ages 55 to
64, $24,000 if over 65.
50 percent of retired pay/survivor benefits
$2,000 exemption for retirees under 60,
$12,500 if 60 or older.
District of Columbia:
$3,000 exemption for retirees 62 or older.
No survivor benefit exemption.
$35,000 exemption for retirees ages 62 to
64, $65,000 if 65 or older.
$30,396/$45,594 (single/married filing
jointly) exemption for retirees age 65 or
older (disabled and 62 or older).
$5,000 exemption for retirees/survivors age
60 or older.
$6,000/$12,000 exemption for retirees
single/married age 55 or older.
No tax if retired before Jan. 1, 1998.
$41,110 exemption if retired after Dec. 31,
$10,000 exemption for retired pay.
$5,000 exemption for retired pay.
For 2015, 90 percent of military retirement
is exempt. On Jan. 1, 2016, 100 percent of
military retirement pay will be exempt.
$3,900 maximum exemption if federal adjusted
income is $32,480 or less.
Staring in 2015, military retirees may make
a one-time election within two calendar
years after retirement date; choose to
exclude 40 percent of military retirement
benefit income for seven consecutive taxable
years or 15 percent of military retirement
benefit income for all taxable years
beginning with the year the retiree turns
State offers low- and middle income
exemption. Maximum exemption is $2,500. To
qualify, adjusted gross income must be
$36,667 or less (single filers), $27,500 or
less (married filing separately), or $55,000
or less (married filing jointly or head of
Retired pay and survivor benefits exempt if
retiree had five or more years of creditable
service as of Aug. 12, 1989; others may take
$15,000 for married filing jointly, $12,000
head of household, or $7,500 for single or
married filing separately.
Military retirees may exclude the greater of
75 percent of their retirement benefits or
$10,000 (but not to exceed the amount
included in their federal adjusted gross
If all military service occurred before Oct.
1, 1991, retirement pay is 100-percent
exempt. If all service occurred after Oct.
1, 1991, then none is exempt. If service
occurred both before and after Oct. 1, 1991,
retirees must compute the percentage of
exempt retired pay, which will remain the
same from year to year. Divide months of
service or points earned before Oct. 1,
1991, by total months of service and round
the percentage to three places (for example,
0.4576 would be 45.8 percent).
Below age 65, up to $3,000 is exempt. If 65
or older, up to $10,000 is exempt.
Below age 65, 6 percent of retired pay may
be taken as a tax credit (or $288, whichever
is less). If 65 or older, may claim
$450/$900 tax credit (single/married),
subject to income eligibility limits
($16,000 for married filing separately,
$25,000 for singles, or $32,000 for married
Retirees age 65 and older can deduct up to
$12,000 a person of retired income, subject
to income eligibility limits, reduced $1 for
every $1 that federal adjusted gross income
exceeds $50,000 (single filers) or $75,000
$2,000 exempt, plus an additional decreasing
modification for military retirement up to
Note: State laws are subject to change; contact your stateís department
of veterans affairs for up-to-date information.
States not listed have no exemption. [Source:
MOAA State Report Card | Nov 2015 ++]