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, as well.  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 allow one:

 

  • Arizona:  Up to $2,500 of retired pay/survivor benefits are exempt.
  • Arkansas:  Up to $6,000 of retired pay/survivor benefits are exempt.
  • Colorado:  $20,000 exemption for retirees ages 55 to 64, $24,000 if over 65.
  • Connecticut:  50 percent of retired pay/survivor benefits are exempt.
  • Delaware:  $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.
  • Georgia:  $35,000 exemption for retirees ages 62 to 64, $65,000 if 65 or older.
  • Idaho:  $30,396/$45,594 (single/married filing jointly) exemption for retirees age 65 or older (disabled and 62 or older).
  • Indiana:  $5,000 exemption for retirees/survivors age 60 or older.
  • Iowa:  $6,000/$12,000 exemption for retirees single/married age 55 or older.
  • Kentucky:  No tax if retired before Jan. 1, 1998. $41,110 exemption if retired after Dec. 31, 1997.
  • Maine:  $10,000 exemption for retired pay.
  • Maryland:  $5,000 exemption for retired pay.
  • Missouri:  For 2015, 90 percent of military retirement is exempt. On Jan. 1, 2016, 100 percent of military retirement pay will be exempt.
  • Montana:  $3,900 maximum exemption if federal adjusted income is $32,480 or less.
  • Nebraska:  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 67.
  • New Mexico:  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 household).
  • North Carolina:  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.
  • Oklahoma:  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 income).
  • Oregon:  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).
  • South Carolina:  Below age 65, up to $3,000 is exempt. If 65 or older, up to $10,000 is exempt.
  • Utah:  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 filing jointly).
  • Virginia:  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 (married filers).
  • West Virginia:  $2,000 exempt, plus an additional decreasing modification for military retirement up to $20,000.

 

     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 ++]