State Tax Breaks Expand for Retired Soldiers and Survivors

By MyArmyBenefits staff      February 2026

Two states recently passed legislation that partially exempts military retired pay from state income taxes, making it easier for military retirees and surviving spouses to keep more of their hard-earned benefits. The state of California (https://myarmybenefits.us.army.mil/Benefit-Library/State/Territory-Benefits/California) is offering an exemption for the first time and the state of Vermont (https://myarmybenefits.us.army.mil/Benefit-Library/State/Territory-Benefits/Vermont) expanded eligibility for their existing exemption for qualifying recipients. Both benefits are partial, based on specific net income, and retroactive to Jan. 1, 2025.

What qualifying retirees need to know:

California

  • California’s new partial exemption, beginning in 2025, subtracts up to $20,000 from state income tax on military retired pay or survivor benefits annuities. This is available for those with a federal adjusted gross income (AGI) of less than $125,000 for single filers or $250,000 for joint filers.
  • This benefit is open to the U.S. Army and other uniformed services, including the U.S. Public Health Services (USPHS) and the National Oceanic and Atmospheric Administration (NOAA).

The California benefit was enacted on June 27, 2025, and will remain in place through tax year 2030 unless renewed. Advocates are excited about the forward movement although it was not approved for the full exemption originally proposed.

Vermont

  • Vermont expanded to a full exemption for retirees and survivors with a federal AGI less than $125,000.
  • Retirees and survivors with an AGI receive a partial tax exemption for AGI between $125,000 and $175,000, calculated proportionally.
  • No exemption for federal AGI above $175,000.
  • Vermont tax exemptions also apply to USPHS and NOAA.
  • Expands current limitations that exempted only the first $10,000 of military retired pay, for those with an AGI of $60,000 or less for single filers or $75,000 for joint filers, and for survivors with an AGI of $60,000 or less.

There are other states that retirees should keep an eye on for progression in reducing income tax for retired military. Oregon (https://myarmybenefits.us.army.mil/Benefit-Library/State/Territory-Benefits/Oregon) is currently considering legislation that would fully exempt military retired pay for all veterans, with the new law potentially taking effect for tax years beginning on or after Jan. 1, 2026. While a bill for full retired pay exemption in Delaware (https://myarmybenefits.us.army.mil/Benefit-Library/State/Territory-Benefits/Delaware) did not pass, the state has an existing military retired pay exemption of up to $12,500 for those at or under age 60. After age 60, Delaware offers a pension exemption of up to $12,500 that includes retired military pay.

If you are approaching retirement or receiving survivor benefits, be sure to check your state/territory laws (https://myarmybenefits.us.army. mil/Benefit-Library/State/Territory-Benefits). Changes like these could make a significant difference in your annual retirement or survivor income. Find information on your state/territory benefits and stay up to date on your federal benefits at MyArmyBenefits (https://myarmybenefits.us.army.mil) under the Benefit Library menu.

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