No State Income Tax (9 States)
States That Fully Exempt Military Retirement Pay
Full Exemption States (Selected)
Illinois — Fully exempts all military retirement pay from state income tax. No age or amount restrictions.
Kansas — Fully exempt since 2022.
Louisiana — Fully exempt for retirees on or after Jan 1, 2022.
Maryland — Up to $20,000 exempt (age 55+), additional exemptions available.
Michigan — Significant exemptions for veterans born before 1953; partial for younger veterans.
North Carolina — Full exemption for retirement pay for active duty retirees.
Pennsylvania — All retirement income exempt from PA income tax.
South Carolina — Full exemption for retirement pay since 2022.
Notable Partial Exemptions
Virginia — $40,000 Permanent Exemption Cap
Virginia permanently caps its military retirement income deduction at $40,000/year as of 2025. Previously the exemption was scheduled to phase up to unlimited, but the General Assembly fixed it at $40,000. For most retired service members, this eliminates state tax on the first $40,000 of retirement pay annually.
California — Limited Exemption
California taxes military retirement pay as ordinary income with minimal exemption. However, VA disability compensation (not retirement pay) remains 100% state-tax-free, as it is federally exempt.
New York — Partial Exemption
New York exempts military retirement pay received by active duty retirees from state and city income tax. NY National Guard pensions receive different treatment.
VA Disability vs. Military Retirement — Key Distinction
Frequently Asked Questions
Is VA disability pay taxable at the state level?
No — VA disability compensation is completely tax-free at both federal and state levels under 26 USC §104. Every state in the union exempts VA disability pay from state income tax. This is distinct from military retirement pay, which varies by state.
Is military retirement pay federally taxable?
Yes — military retirement pay (from DoD) is federally taxable as ordinary income. VA disability compensation is not. Veterans receiving both under CRDP may need to work with a tax professional to properly report the taxable portion.
Which is the most tax-friendly state for veterans?
Florida and Texas are consistently ranked the most tax-friendly for veterans — no state income tax at all (meaning both military retirement and all other income is state-tax-free), plus among the strongest property tax exemptions for 100% P&T veterans in the country.