How Does Being a Veteran Affect Your Taxes?

Retired military service members may be eligible for tax benefits offered by the federal government and some states.

US flags in the foreground with blurred trees in the backgrouind
(Image credit: Getty Images)

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. 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

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Kelley R. Taylor
Senior Tax Editor,

As the senior tax editor at, 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.