By MyArmyBenefits staff     January 2026

Tax planning is universal. Start preparing now for your federal income tax return; advance preparation helps ensure accuracy and prevents delays in receiving your refund.

While completing your taxes is a yearly “to-do” item, it is important to plan for future taxes, as well. As you prepare for transitioning out of the military, consider that your retired pay will be taxed differently than your current pay. Additionally, which state you live in can significantly impact how much you pay in state income taxes.

Over the past several years, many states passed legislation that eliminated or reduced their state taxes on military retired pay. For tax year 2025, there are 9 states that do not have any income tax at all, 28 that fully exempt military retired pay, 13 that offer a partial exemption, and one, the District of Columbia, that fully taxes military retired pay. The U.S. territories of American Samoa and the Northern Mariana Islands do not have an income tax, but like Guam and the U.S. Virgin Islands, do fully tax military retired pay. Puerto Rico however, fully exempts military retired pay. Partial retired pay exemptions are often tied to age, income levels, and/or other requirements and can range from offering little benefit to really making a difference. If you are considering a move as part of your retirement plan, be sure to look at state tax information and compare the state where you live with other states you are considering.

Two more states made changes in 2025 that help retirees keep more of their military retired pay. Both California and Vermont passed new legislation effective for tax year 2025 that allows retirees a partial exemption of their retired pay on state taxes if they are within certain income limits:

• California provides a partial exemption of the first $20K of military retired pay for individuals with adjusted gross income (AGI) of $125K or less and married couples filing jointly with an AGI less than $250K. This first-ever exemption for the state is set to end after the 2029 tax year unless an extension is enacted.
• Vermont improved their previous exemption so that more retirees can benefit. The new law allows those with an AGI of $125K or less a full exemption of all military retired pay and allows a partial exemption for those with an AGI of more than $125K but less than $175K.

Other changes for the 2025 tax year and beyond include:

• The final increase in the state tax exemption for military retired pay in Virginia. Since it became law in 2022, the exemption amount has increased annually. Those increases stop with the 2025 tax year at $40K where it will remain for future tax years. Originally, the exemption was only available to those age 55 and over but legislation passed in 2024 opened it up to all military retirees, regardless of age.
• In 2024, New Mexico made their exemption that was set to end after tax year 2026, permanent, providing a $30K exemption for military retirees into perpetuity.
• In May of 2025, Georgia passed legislation to increase its exemption of military retired pay to $65K and drop age requirements starting in tax year 2026.

Want to find tax information for your possible retirement locations? Visit the MyArmyBenefits state/territory fact sheets and compare state income taxes, property tax benefits for veterans and survivors, and more.