You spent 20 or more years in uniform. You earned that retirement check. And depending on where you live, your state government might take a cut of it every single month.

That is not a hypothetical. Some states tax military retirement pay at their full income tax rate. Others exempt it completely. And a growing number have changed their laws in the last few years to attract military retirees. If you are planning where to settle after your career, this is one of the biggest financial variables you can actually control.

I built BMR after spending 1.5 years applying for government jobs with zero callbacks post-separation. During that time I learned the hard way that where you live matters. Not just for job opportunities, but for how much of your retirement check you actually keep. This guide breaks down every state's approach to military retirement pay taxes in 2026 so you can make an informed decision.

States With No Income Tax at All (Your Retirement Pay Is Automatically Safe)

Nine states have no state income tax. If you live in one of these, your military retirement pay is not taxed at the state level. Period. No exemption to apply for, no income threshold to worry about, no paperwork.

• Alaska
• Florida
• Nevada
• New Hampshire (taxes interest and dividends only, not earned income or retirement pay)
• South Dakota
• Tennessee
• Texas
• Washington
• Wyoming

These nine states are the simplest option. No calculations, no phase-outs, no annual changes to track. Your military retirement pay hits your bank account and the state does not touch it.

Florida and Texas are the two most popular destinations for military retirees, and the no-income-tax status is a big reason why. Large veteran communities, proximity to military installations, and warm weather all help. But do not overlook states like South Dakota, Wyoming, and Nevada if you are open to different regions. Cost of living in those states can be significantly lower than the Florida or Texas metros that attract the most transplants.

States That Fully Exempt Military Retirement Pay

Beyond the nine no-income-tax states, a growing list of states have passed laws specifically exempting military retirement pay from state income tax. You file a state return, you may owe taxes on other income, but your military pension is excluded.

As of 2026, these states fully exempt military retirement pay:

• Alabama
• Arizona
• Arkansas
• Connecticut
• Hawaii
• Illinois
• Indiana
• Iowa
• Kansas
• Kentucky
• Louisiana
• Maine
• Michigan
• Minnesota
• Mississippi
• Missouri
• Nebraska
• New Jersey
• New York
• North Carolina
• North Dakota
• Ohio
• Oklahoma
• Oregon
• Pennsylvania
• South Carolina
• Utah
• West Virginia
• Wisconsin

This list has grown substantially in the last five years. States like Indiana, Nebraska, North Carolina, and Utah all passed full exemptions relatively recently. The trend is clear. State legislatures recognize that military retirees bring stable income, community involvement, and spending power. Exempting retirement pay is one of the most effective tools they have to attract that population.

If you are weighing a state on this list, check whether the exemption is automatic or requires you to claim it on your state tax return. Most states require you to identify the income as military retirement on your filing. It is not difficult, but you need to know to do it.

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States That Partially Exempt Military Retirement Pay

A handful of states offer partial exemptions. These vary widely. Some cap the exemption at a dollar amount. Others phase it out based on total income. Others tie it to age or years of service.

Partial exemptions can still save you thousands per year. But they require more planning. If you are close to an age threshold, it might make sense to wait a year before establishing residency. If you are near an income cap, factor in whether a civilian salary on top of your retirement pay pushes you over the limit.

Virginia is worth watching. The state has been steadily increasing its military retirement deduction and may reach full exemption within a few years. Maryland has also been expanding its exemption under recent legislation. If you already have roots in either state, the trajectory is moving in your favor.

States That Still Fully Tax Military Retirement Pay

A small number of states still tax military retirement pay at the same rate as any other income. As of 2026, those states include:

• California
• Vermont

California stands out because it has one of the highest state income tax rates in the country (up to 13.3%) and offers no specific exemption for military retirement. If you are a retiree collecting $30,000 per year in military pension and living in California, you could owe several thousand dollars in state taxes on that income alone.

Vermont similarly taxes military retirement as regular income. Given the relatively high cost of living in Vermont, this is a double hit for retirees considering the state.

If you are currently in a state that fully taxes your retirement pay and you are flexible on where you live, the math on relocating is worth running. The tax savings alone can amount to $2,000 to $5,000+ per year depending on your retirement pay grade and years of service.

Recent Changes Worth Knowing About

The landscape has shifted fast. Five years ago, more than a dozen states still taxed military retirement pay. The push toward full exemptions accelerated after 2020, and several states made changes effective in 2024 and 2025 that now apply in 2026.

Notable recent changes:

• Indiana phased in its full exemption over several years. As of 2026, all military retirement pay is exempt.
• Nebraska passed full exemption effective 2022. This was a major shift. Nebraska had previously offered only a partial exemption.
• North Carolina passed its Bailey Settlement exemption for vested military retirees. The state also moved toward broader exemptions in recent legislative sessions.
• Utah moved from a tax credit approach to a full exemption.
• Iowa phased out its income tax on retirement pay as part of a broader income tax reform.
• Wisconsin added its military retirement exemption in recent years after sustained lobbying efforts by veteran organizations.

The trend is moving in one direction. States are competing for military retirees. If your current state still taxes your retirement pay, there is a decent chance legislation is being proposed. Check your state legislature's website or contact your state veterans affairs office for the latest.

This matters for your overall state-by-state planning as a veteran. For a broader look at which states rank best across all factors — employment, VA access, cost of living, and military community — check our guide to the best states for military retirees in 2026. Tax policy is one factor alongside job markets, VA healthcare access, and veteran support infrastructure.

Tax Exemption Is Only One Piece of the Relocation Math

Saving $3,000 a year on state taxes does not help much if your housing costs jump by $15,000. Tax policy matters, but it needs context.

Here is what else to factor in when picking a state:

Cost of living. Texas has no income tax, but Austin and Dallas housing prices have surged. Meanwhile, states like South Dakota or Alabama offer both tax advantages and genuinely lower costs for housing, groceries, and healthcare. The Bureau of Labor Statistics Consumer Price Index and regional cost-of-living calculators from .gov sources can help you compare.

Property taxes. Some no-income-tax states make up the revenue elsewhere. Texas has notably high property taxes. New Hampshire relies heavily on property tax. Factor this into your total tax burden, not just income tax.

Sales tax. Alaska has no state sales tax, but some localities do. Oregon has no sales tax at all. If you spend significantly, sales tax adds up over a year.

VA healthcare access. Proximity to a VA medical center or community-based outpatient clinic matters if you use VA healthcare. Rural states with great tax policy might mean long drives for appointments.

Employment opportunities. If you are starting a second career after military retirement, the local job market matters as much as tax savings. A state with no retirement tax but limited job opportunities in your field could cost you more in lost earning potential than you save on taxes.

The veterans who make the best relocation decisions look at the full picture. Tax exemption, cost of living, job market, VA access, family proximity, and quality of life. No single factor should drive the decision alone.

How Your Retirement Pay Grade Affects the Math

The actual dollar impact of state taxes on your military retirement depends on your pay grade, years of service, and when you retired. An E-7 retiring at 20 years has a very different monthly check than an O-5 retiring at 26.

For rough planning, here are the 2026 approximate annual retirement pay ranges (based on 50% of base pay at 20 years):

These are estimates based on 2026 pay tables. Your actual retirement pay depends on your specific base pay at retirement, which DFAS calculates. The point is that even at an E-7 level, you could be paying over $1,500 a year in state taxes on retirement income in a state that does not exempt it. Over 20 years of retirement, that is $30,000.

For higher-ranking retirees, the numbers get serious. An O-5 or O-6 in California could pay $4,000 to $6,000+ annually in state taxes on retirement pay alone. Move to Texas, Florida, or any full-exemption state and that money stays in your pocket.

Dual Income: Retirement Pay Plus a Civilian Salary

Many military retirees do not just collect retirement pay. They start second careers. If you are drawing retirement pay and earning a civilian salary, both income streams factor into your state tax situation.

A state that exempts military retirement pay but taxes your civilian salary still gives you a significant advantage. You are only being taxed on one income stream instead of two. For a retiree earning $60,000 civilian plus $30,000 retirement, exempting the retirement portion could save $1,500 to $3,000 depending on the state tax rate.

This is especially relevant if you are pursuing high-paying civilian careers after the military. The higher your civilian salary, the more your total state tax bill grows. Having the retirement portion exempt softens that considerably.

Some veterans also look into federal employment after retirement. Federal salaries are taxable by your state of residence. So your state tax policy affects your federal paycheck too. If you are building a resume for your next career, factor in where you will live and what that means for your total take-home pay.

BRS vs. Legacy Retirement and State Tax Implications

The Blended Retirement System (BRS) introduced in 2018 changed how many service members receive retirement benefits. Under BRS, your pension is smaller (40% of base pay at 20 years vs. 50% under the legacy system), but you also have TSP contributions with government matching.

For state tax purposes, there is an important distinction. Your BRS pension is treated the same as legacy retirement pay for exemption purposes. If a state exempts military retirement pay, it exempts BRS pension payments too.

However, TSP withdrawals are a different story. TSP distributions are generally treated as regular retirement income by states, not as military retirement pay. So even in a state that fully exempts military retirement, your TSP withdrawals may still be taxed depending on the state's rules for retirement account distributions.

This matters for planning. If you are under BRS and a significant portion of your retirement income will come from TSP, look at both the military retirement exemption and the state's treatment of retirement account withdrawals. Some states exempt all retirement income (like Illinois and Mississippi). Others only exempt the military pension portion.

How to Change Your State of Legal Residence

If you are still on active duty, you already know about the Servicemembers Civil Relief Act (SCRA) and how it protects your state of legal residence. But once you separate or retire, the rules change.

After retirement, your state of legal residence is determined by where you actually live and intend to stay. To establish residency in a new state, you generally need to:

• Physically move to the state and establish a home there
• Get a driver's license in the new state
• Register to vote in the new state
• Update your address with DFAS for tax withholding purposes
• File a state tax return in the new state (and a final/part-year return in your old state if applicable)

You cannot simply claim a no-tax state as your residence while living somewhere else. State tax authorities audit this, and getting it wrong can result in back taxes, penalties, and interest.

DFAS allows you to change your state tax withholding through myPay. Once you establish residency in a tax-free or exemption state, update your withholding so they stop taking state taxes out of your retirement check. This is money in your pocket every month, not just at tax time.

What to Do Next

If you are approaching retirement or already retired and wondering whether your current state is costing you, run the numbers. Pull up your retirement pay statement on myPay, check your state tax line, and see what you are actually paying.

Then look at the lists above. If your state fully exempts military retirement pay, you are already in good shape. If it does not, calculate what you would save by relocating and weigh that against moving costs, job market access, family considerations, and quality of life.

For veterans who are in the middle of a career change after 20 years of military service, this is the time to factor relocation into your planning. If you are moving for a new job anyway, choosing a state with favorable tax treatment for your retirement pay is free money.

If you are building your civilian or federal resume for the next chapter, BMR's military resume builder can help you translate your experience into language that gets callbacks. Where you live determines your tax burden. What is on your resume determines your earning potential. Handle both.