Is military retirement taxable? The federal answer, and how states differ
Short answer
Yes, federally. Military retired pay based on age or length of service is taxable as ordinary income, the same as a pension, and DFAS reports it on a 1099-R each January. What isn't taxable: VA disability compensation, Combat-Related Special Compensation (CRSC), retired pay you waive to receive VA compensation, and some disability retirement (combat-related, or for people in service by September 24, 1975). States are a different story: many don't tax military retired pay at all. See the state table below.
Not tax advice. Rules change; confirm with the IRS, DFAS or a tax professional.
What's federally taxable, and what isn't
| Payment | Federal income tax |
|---|---|
| Military retired pay (age or length of service) | Taxable as ordinary income |
| Concurrent Retirement and Disability Pay (CRDP) | Taxable when the retired pay it restores is taxable (it's restored retired pay) |
| Survivor Benefit Plan annuity (to the survivor) | Taxable; DFAS withholds and issues a 1099-R |
| SBP premiums taken from the retiree's pay | Not counted in the retiree's income |
| VA disability compensation and VA pension | Not taxable |
| Combat-Related Special Compensation (CRSC) | Not taxable |
| Retired pay waived to receive VA compensation | Not taxable (retired pay is reduced by the VA amount) |
| Disability retirement for a combat-related injury | Not taxable |
| Disability retirement if you were in service (or committed to join) on Sept 24, 1975 | Not taxable |
| TSP traditional withdrawals | Taxable (except contributions from combat-zone tax-exempt pay) |
| TSP Roth withdrawals | Tax-free if 5 years have passed and you're 59½+, disabled or deceased |
| Social Security | Up to 85% taxable, depending on income |
Sources: IRS Publication 525 (2025); IRS Publication 3 (2025); 26 U.S.C. §104; DFAS, Is my retired pay taxable?; DFAS CRDP and CRSC FAQs; TSP, Tax Rules About TSP Payments (Oct 2026).
How federal tax is withheld
Set your federal withholding on Form W-4P through DFAS or myPay. DFAS sends a 1099-R each January, and you report retired pay as a pension on Form 1040, lines 5a and 5b. Source: DFAS; IRS Publication 525.
How each state treats military retired pay (2026)
| State | Military retired pay |
|---|---|
| Florida, Nevada, Tennessee, Texas, Washington | Not taxed (no state income tax) |
| Arizona, South Carolina | Fully exempt |
| North Carolina | Exempt with 20+ years of service or a medical retirement |
| Virginia | Up to $40,000 per person subtracted |
| Georgia | Up to $17,500 under 62 (plus $17,500 more with earned income); $35,000–$65,000 general exclusion from 62 |
| Maryland | $12,500 under 55, $20,000 from 55 |
| Colorado | Up to $15,000 under 55; $20,000–$24,000 pension subtraction from 55 |
| Kentucky | Service before 1998 exempt; then a $31,110 exclusion |
Common mistakes
- Thinking VA disability pay and retired pay are taxed the same. VA compensation is tax-free; the retired pay it replaces isn't counted.
- Assuming CRDP is tax-free like CRSC. CRDP is usually taxable; CRSC isn't.
- Assuming a state with no tax on military retirement also skips other income. Check the state page: some exempt only military pay.
- Forgetting the survivor pays tax on SBP.
Moving after retirement?
- Retirement destinations: what your home sale leaves you, state taxes and the drive to the hospital and VA.
- PCS guides for every installation we cover.
Questions about a move? Ask Chris →
FAQ
- Is military retirement taxable federally?
- Yes. Retired pay based on age or length of service is taxed as ordinary income.
- Is VA disability compensation taxable?
- No. VA disability compensation and VA pension payments aren't taxable.
- Is CRSC taxable?
- No. Combat-Related Special Compensation is excluded from income. CRDP, by contrast, is taxable whenever the retired pay it restores is taxable.
- Is the Survivor Benefit Plan taxable?
- Yes, to the survivor who receives it. The retiree's SBP premiums aren't counted as income.
- Which states don't tax military retirement?
- Of the states we cover: Florida, Nevada, Tennessee, Texas and Washington (no income tax), plus Arizona and South Carolina (full exemption). North Carolina exempts it with 20+ years or a medical retirement.
Sources
Last reviewed October 21, 2026. Not tax advice.
Social Security and the new senior deduction
Social Security becomes partly taxable when your combined income passes $25,000 (single) or $32,000 (married filing jointly), and up to 85% is taxable above $34,000 / $44,000. For tax years 2025 through 2028, people 65 and older also get an extra $6,000 deduction each ($12,000 for a couple), phasing out above $75,000 of modified AGI ($150,000 joint). It doesn't make Social Security tax-free; it's a separate deduction. Sources: IRS Publication 915 (2025); IRS, enhanced deduction for seniors (updated Sept 2026).