State Tax Update: News From 5 States on Efforts to Exempt Military Retired Pay

State Tax Update: News From 5 States on Efforts to Exempt Military Retired Pay
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Is your state still fully taxing retirement pay? 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.


Maryland MOAA members are working vigorously to pass exemptions on the taxation of military retirement pay in their state.


Senate Bill 574 and accompanying House Bill 734, both introduced Jan. 26, would grant a partial state tax exemption for military retirement in the 2021 tax year  -- either $15,000 or 50% of the military retirement income, whichever is greater. For the 2022 tax year and beyond, the exemption would extend to all military retirement income received.


MOAA’s Maryland Council of Chapters is part of the Maryland Military Coalition (on Twitter: @MDMilCoalition), a group of 17 organizations that’s fighting to secure the exemption, said Col. Bob Norton, USA (Ret), council president.  Members of that group “strongly support Gov. [Larry] Hogan’s bill to phase out state income tax on military retired pay as 31 other states have done,” Norton said.  


“This bill is a workforce development measure that will help attract and retain highly skilled and experienced military retirees to live and work in Maryland,” he added. “This will be the Maryland Military Coalition’s top priority.”


Simultaneously, the coalition is pushing for three other bills that would offer at least partial exemptions for state income tax on military retirement pay. The Maryland Council of Chapters has been advocating for tax exemptions for military retirement pay for at least two decades, Norton said:

  • House Bill 166 would exempt many retirement plans, including military retirement as well as Roth Individual Retirement Accounts (IRAs), from state income tax over three years.
  • Senate Bill 370 targets the uniformed services population more directly: Retirees of the uniformed services under age 55 would be able to subtract the first $5,000 of their retirement income from tax calculations, and retirees older than 55 could subtract their first $20,000. However, retirees over 65 years old who are receiving a Social Security benefit would be required to pay a tax on that pay.  
  • House Bill 864 would allow a subtraction modification to the Maryland income tax for the first $30,000 of military retirement income for veterans who have a VA service-connected disability rating of 100%. 


Norton said securing legislative passage will be an uphill battle this year as Maryland, like the rest of the nation, grapples with economic losses due to the COVID-19 pandemic.  


“We’ve already been at the elimination issue in Maryland for over 20 years,” Norton said. “We’re not newbies to this long, drawn-out struggle.”


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


Exemptions could entice more servicemembers to live in Maryland, boosting the local economy. Norton said he knows servicemembers who work in Maryland but choose to live in neighboring Pennsylvania and New Jersey because they’re eligible for tax exemptions in those states. 


“These officers and retired NCOs have lots of choices,” Norton said. “They’re in great demand around the country. If they can go to a state like Pennsylvania that doesn’t tax military retirement pay, why not? They have choices and they will travel. Our argument is the state is denying itself income through homeownership, second careers, skills and security clearances that should make Maryland want to change its laws.”


The coalition already has drafted testimony regarding proposed legislation and has several MOAA members in mind to call upon, Norton said.


“We will continue to raise the voices of the military retiree community,” he added.


Montana Tax Exemption Re-Introduced

Legislation to partially exempt retired military service pension from Montana’s state income tax was swiftly introduced in that state’s 2021 House session.


Montana Rep. John Fuller introduced H.B. 111 on Jan. 5; the bill would provide a 50% exemption on military pensions and income received as survivor benefits for military service.


“Fifty years ago this December, I returned home from a long, extended tour in Vietnam to an ungrateful nation,” said Fuller, an Army veteran, to the state’s tax committee. “As times change, the country changed our new veterans – especially those since 2001 – are deserving of better. Montana needs to join the other 42 states that recognize (retired servicemembers) have made incredible sacrifices on behalf and that their coming home means we will walk among heroes.”


[RELATED: A New Plan for Social Security Payroll Tax Payback]


Fuller introduced similar legislation that died in committee in April 2020. The new legislation is being reviewed by the state’s Taxation Committee.


The legislation covers armed branches, but does not cover the U.S. Public Health Service Commissioned Corps or the NOAA Commissioned Corps.


If passed, the legislation would go into effective immediately and be retroactive to military retirement or pension income or survivor benefits after Dec. 31, 2020.


The legislation has struggled to gain traction in Montana, so Fuller marketed it as a “workforce development plan,” he said. He has emphasized how attracting retired military members to Montana will strengthen the state’s workforce and economic viability.


“I believe that it is a workforce development incentive designed to attract more (retired servicemembers) to the state and consequently increase state revenue, stimulate the Montana economy and welcome home those military personnel who dedicated their lives to the defense of all of us,” Fuller said.


Several states surrounding Montana offer at least partial exemptions for military retirees, Fuller said. This legislation would level the playing field, he said.


Other State Updates

  • South Carolina: A bill to exempt all military retiree income tax in South Carolina has been referred to the chamber’s Committee on Ways and Means. The bill is sponsored by Bobby Cox, a MOAA member and lieutenant colonel in the Army Reserve.
  • Kentucky: Gov. Andy Beshear proposed a full tax exemption on military pensions during his State of the Commonwealth’s Budget address. The move, he said, would recognize “the service of our men and women in uniform and what it means to our country.”
  • Georgia: Rep. Bill Hitchens introduced legislation that would grant a full exemption on military retirement pay, telling the Savannah Morning News the state should “incentivize military retirees to stay in the state so Georgia can benefit from their skills and expertise.”


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About the Author

Amanda Dolasinski
Amanda Dolasinski

Dolasinski is a former staff writer at MOAA.