Is There Tax on Military Retirement?

The Army and National Guard retirement systems are arguably the best retirement deals around. Unlike most civilian retirement plans, the Army offers you a pension with benefits, that starts the day you retire, no matter how old you are. That means you could start collecting a regular retirement pension as early as 37 years old! What’s more, that pension check will grow with a cost of living adjustment each year.  But, what about taxes?  Here is a little FYI about taxes on military retirement…

In general, retirement pay, like all other income pay is, unfortunately, subject to income tax.  DFAS will calculate exactly how much is to be withheld and that amount will be withheld each payment.

There are exceptions to the rules, though! If your retirement is for disability reasons, then all retired pay is tax-free! An IRS Form 1099-R simply will not be issued and you are not required to report this tax-free income.

Basically, determinations in each individual tax case are made by the IRS or the tax authorities of the State government jurisdiction. Answers to Federal tax questions should be obtained from the District Director of Internal Revenue Service. Answers to state tax questions may be obtained from appropriate State officials or your local unit finance department.  It is highly recommended that you consult with a legal attorney, a tax consultant or the IRS.

Don’t be discouraged, though.  Even in the civilian world, your retirement pay will be taxed as you withdraw from your 401k or other retirement account (provided the contributions were made tax-free during your employment).  Regardless of whether your Army retirement pay is taxable or not, it is still a great benefit of serving in the Army and National Guard.  Unlike the civilian world, it is a benefit you receive without having to make your own contributions and grows each year, rather than diminishes.

What are your thoughts? Do you have any questions? You can post your comments or questions below. Thank you.

chuck holmes

Chuck Holmes
Former Army Major (resigned)

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9 thoughts on “Is There Tax on Military Retirement?”

  1. Great article! I’ve never comprehended why they impose your military retirement. You worked 20+ years to get the retirement, and you paid charges amid your whole time in the military. I trust all military retirement ought to be excluded from state and government charges.

  2. This may cause a huge debate, but I need to go ahead and say it… I will play the devil’s advocate and say that taxes are a necessary evil. Yes, we think that ex-military shouldn’t be taxed, but there are others then that shouldn’t be if we consider it; how about police who serve and protect us; or teachers who teach our children. Scientists who are developing cures for diseases and so forth.

    With no taxes, we have no military, we have no decent roadways, we have a third world country.

    No, the tax system isn’t perfect, but our country is greater than all the rest; the reason why is because we all give to the common good through taxation.

    The system does need revamping, but for now it is working better than others. Or maybe we should just all go to a Communistic system.

    Just my two cents….let the arrows and bullets fly. LOL

    1. Income taxes used to be illegal, and still should be as I see it.

      The gov’t is always asking for more money, but can’t even balance the budget.

      Throwing more money at the problem, and just raising taxes is no the solution.

      1. I agree, but the system does need to run. We need a total revamping. In my opinion, we need to take the career politicians out and put normal janes and joes in. There is a way the Government could be self sufficient if done properly, but is it too late?

  3. Stop taxing military retirement Uncle Sam! Enough is enough. Our service members do more than enough for their country and should be able to have a tax free retirement.


  4. I’ve never understood why they tax your military retirement. You worked 20+ years to get the retirement, and you paid taxes during your entire time in the military. I believe all military retirement should be exempt from state and federal taxes.

  5. Great article, Justin. I would like to chime in and let people know that not every state taxes your military retirement. Several states are “military friendly” and will not tax ANY of your military pension. It would be in your best interest to research which states offer this incentive and consider retiring in one of those states. Over the course of your retirement years, you could save tens of thousands of dollars by living in a military friendly state.


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