How Does Being a Veteran Impact Your Taxes?
Retired military service members may be eligible for tax benefits offered by the federal government and some states.


Some Veterans are unsure about how their military service affects their taxes. The fact is that military retirement pay is taxable at the federal level, while disability compensation benefits and disability retirement pay are generally exempt.
Additionally, most states don't tax military retirement income or they only partially tax it. (More on that later). However, the District of Columbia and California fully tax military pensions.
It should be noted that military retirees may be surprised by the amount of federal income tax they owe when filing their first tax return after leaving the service.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
According to the IRS, military retirement income combined with income from a civilian job or a spouse's income, can push Veterans into a higher federal income tax bracket.
One way to address this is to evaluate and perhaps adjust your tax withholding for other employment or your military retirement pay.
The IRS also has an online Tax Withholding Estimator tool that can help determine, in advance, how much tax you might owe.
However, there are some tax breaks and benefits available for military Veterans, some of which can lower your taxable income. Here are a few examples.
State and federal tax breaks for Veterans
Note: Eligibility rules and requirements vary, so not all tax benefits are available to all retired military members.
- Tax Benefits for Disabled Veterans. Disabled Veterans may be eligible for tax breaks at the federal and state levels. It's worth noting again that disability benefits you receive from the Department of Veterans Affairs (VA) are excluded from gross income and are not subject to tax. Typically, disability retirement pay, other disability compensation, and benefits received under a dependent care assistance program are also not taxable.
- Veterans Education Benefits. Veterans receiving education, training, or subsistence payments from the VA don’t have to report the payments as income on their federal tax returns.
- Special Tax Refund Considerations. Retired military service members may be eligible for a federal tax refund in special tax situations, such as an increase in disability percentage or being granted combat-related special compensation after concurrent retirement and disability.
Note: Veterans may need to file a tax return to claim disability deductions or exemptions. If your income changes, you should re-evaluate eligibility and file an amended return if necessary. Special tax considerations may also require filing an amended return. Evaluate your disability exemptions and deductions annually and consult a trusted tax advisor as needed.
Property tax and disabled Veterans
If you're a retired military service member, it's worth checking to see if you qualify for state property tax exemptions. Generally, these exemptions are reserved for disabled Veterans, although eligibility criteria and rules vary from state to state.
Older adults 65 and older may also be eligible for property tax relief.
It's good to check the eligibility guidelines in your state, which could help reduce your property tax bill.
Do military members qualify for the earned income tax credit?
The earned income tax credit (EITC) is often overlooked by eligible Veterans and military households, as well as individuals with disabilities, those living in nontraditional homes, and households with no children.
The credit is designed for people whose earned income was under $66,819 during 2024, and it can lower the amount of taxes that you owe or result in a tax refund.
Last year, nearly 23 million eligible workers and families received about $57 billion in earned income credits, with the average EITC amount being just over $2,500.
The IRS reports that almost two million Veterans and military households receive the credit. (Several states also offer an earned income tax credit.)
States that don’t tax military retirement
Most states fully exempt military retirement income from state income tax.
- As mentioned, however, when it comes to tax treatment, some states don’t favor military income.
- And other states only offer partial tax breaks to Veterans in terms of how military retirement income is taxed.
States that still partially tax retirement income include Delaware, Georgia, Idaho, Kentucky, Maryland, Montana, New Mexico, Oregon, Vermont, and Virginia.
The District of Columbia and California still fully tax military pensions.
Related
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

As the senior tax editor at Kiplinger.com, Kelley R. Taylor simplifies federal and state tax information, news, and developments to help empower readers. Kelley has over two decades of experience advising on and covering education, law, finance, and tax as a corporate attorney and business journalist.
-
What Trump’s 'Big Beautiful Bill' Means for Your Utility Bills
If passed, the 'Big Beautiful Bill' could make home energy upgrades more expensive and raise monthly costs. Here's how much more you might pay and how to prepare.
-
What Boomers and Gen Xers Can Learn from Younger Colleagues
Whether you're Gen X or a baby boomer, your younger colleagues' opinions on work may help you find a new job or be happier in the one you've got.
-
Homeschoolers Could Soon Save on Expenses With 529 Plans
Savings Accounts A new House GOP bill could change how you save for your child's homeschool education. Find out how.
-
Ohio Announces Two-Week Sales Tax Holiday Amid Tariffs, High Prices
State Tax Ohioans won't want to miss out on savings as pressure from tariffs spikes prices.
-
Five ‘Big Beautiful Bill’ Tax Changes to Watch in the Senate
Tax Policy The House passed its version of Trump’s "One Big, Beautiful Bill." Here’s what to look for as Senate Republicans take up the mega legislation.
-
New GOP Car Loan Tax Deduction: Which Vehicles and Buyers Qualify
Tax Breaks To fulfill Trump's campaign promise, House GOP lawmakers want to offer a tax deduction for car loan interest. How would it work?
-
Big GOP Tax Bill Could Change Your Estate Planning for 2025
Tax Law The GOP might extend and increase the higher estate and gift tax exemption and AMT thresholds. What might this mean for your estate plan?
-
New 'No Tax on Tips' Bill Approved: What to Know Now
Income Taxes Will you stop paying taxes on your tip income this year?
-
Millions Could Lose SNAP Food Benefits Under Trump Tax Cut Plan
Tax Policy The House Agriculture Committee approved nearly $300 billion in cuts to SNAP benefits, putting many at risk of hunger.
-
Missouri Leads Capital Gains Tax Repeal: Will Your State Follow?
State Tax As one state becomes a test case, policymakers and taxpayers across the U.S. will be watching closely to see what happens next.