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The 10 Least Tax-Friendly States for Military Retirees


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If you spent your career in the military, you've probably lived all over the U.S. and around the world. But before you put down roots in retirement, find out how much of your hard-earned pension will be taxed. You'll pay tax to the federal government on military retirement pay that's based on age or length of service (disability pensions might not be taxed). With state taxes, though, it isn't always so clear.

Many states provide special tax breaks for military retirees or for retirement income in general. And, of course, some states don't even have an income tax. But some other states aren't so generous when it comes to helping retired veterans at tax time.

We've identified 9 states, and Washington, D.C., with not-too-friendly tax rules for military pensions. These states may tax at least part of your pension, and some tax the entire amount. We've listed the least tax-friendly of these states first. Take a look.

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1. California

Lowest tax rate: 1% (on up to $17,088 of taxable income for married joint filers and up to $8,544 for those filing individually)

Highest tax rate: 13.3% (on more than $1,145,960 for married joint filers and $1 million for those filing individually)

Go to California's full state tax profile

California offers retired military members no way to escape its high tax rates. The Golden State taxes 100% of income from military pensions, along with private, local, state and other federal pensions.

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2. Vermont

Lowest tax rate: 3.35% (on up to $38,700 of taxable income for singles and up to $64,600 for joint filers)

Highest tax rate: 8.75% (on taxable income of more than $195,450 for singles and $237,950 for joint filers)

Go to Vermont's full state tax profile

The Green Mountain State taxes 100% of income from military pensions, along with all other sources of retirement income. The state also has a steep top income tax rate that could nick military retirees who have other sources of income.

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3. Washington, D.C.

Lowest tax rate: 4% (on taxable income up to $10,000)

Highest tax rate: 8.95% (on taxable income above $1 million)

Go to the District of Columbia's full tax profile

Despite the large number of government workers who call it home, Washington, D.C., offers no tax breaks for those who decide to retire there. A $3,000 exclusion for government pensions, including military pensions, was repealed in 2015.

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4. Montana

Lowest tax rate: 1% (on up to $3,000 of taxable income)

Highest tax rate: 6.9% (on taxable income over $17,900; Montana permits filers to deduct some of their federal income tax)

Go to Montana's full state tax profile

The state provides an inflation-adjusted exemption for public and private pensions, but retirees with a robust military pension probably won't qualify. For 2017, the maximum exemption was $4,110 if federal adjusted income was $36,315 or less ($38,370 for married couples). If your income exceeds these thresholds, you're ineligible for the exemption.

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5. New Mexico

Lowest tax rate: 1.7% (on up to $5,500 of taxable income for single filers and $8,000 for joint filers)

Highest tax rate: 4.9% (on taxable income of more than $16,000 for single filers and $24,000 for married couples filing jointly)

Go to New Mexico's full state tax profile

The Land of Enchantment affords no special treatment for military pensions. People who are 65 or older may receive an $8,000 income exemption that includes military pensions, but to qualify, their adjusted gross income must be less than $28,500 for singles or $51,000 for married couples filing jointly.

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6. Utah

Tax rate: Flat tax of 4.95%

Go to Utah's full state tax profile

Utah doesn't offer any special tax breaks for military retirees, and its retirement-income tax credit is limited. Residents 65 and older are eligible for a retirement-income tax credit of up to $450 per person ($900 per married couple), but the credit is phased out at 2.5 cents per dollar of modified adjusted gross income that's more than $25,000 for singles or $32,000 for married people filing jointly.

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7. Virginia

Lowest tax rate: 2% (on up to $3,000 of taxable income)

Highest tax rate: 5.75% (on taxable income more than $17,000; federal income tax can be deducted)

Go to Virginia's full state tax profile

Virginia provides no special tax breaks for military pensions, but the state provides an age-based deduction for all retirement income. Seniors born on or before January 2, 1939, can deduct $12,000 of retirement income, including military pensions. For those born between January 2, 1939, and January 1, 1953, the deduction is reduced by $1 for every $1 that federal AGI exceeds $50,000 (or $75,000 for married filers).

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8. Rhode Island

Lowest tax rate: 3.75% (on up to $62,550 of taxable income)

Highest tax rate: 5.99% (on taxable income more than $142,150)

Go to Rhode Island's full state tax profile

The Ocean State exempts some retirement income from state taxes, but a military retiree who has income from IRAs or other sources could still get hit with a hefty tax bill. The first $15,000 of retirement income, including private or public pensions, is exempt from state income taxes for retirees who have reached full Social Security retirement age and who have income of up to $80,000 for single filers or up to $100,000 for joint filers.

SEE ALSO: The Least Tax-Friendly States in the U.S. 2018



9. Georgia

Lowest tax rate: 1% (on the first $1,000 of taxable net income for married couples filing jointly; on the first $750 for individual filers; and on the first $500 for married couples filing separately)

Highest tax rate: 6% (on taxable income of more than $10,000 for married couples filing jointly, $7,000 for individual filers and $5,000 for married couples filing separately)

Go to Georgia's full state tax profile

Georgia doesn't provide special treatment for military pensions, but it provides a generous tax break for retirees. The state excludes up to $35,000 of most types of retirement income, including public and private pensions, for those ages 62 to 64. For those 65 and older, the exemption is $65,000 per taxpayer.

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10. North Dakota

Lowest tax rate: 1.10% (on up to $38,700 of taxable income for singles and up to $64,650 for married couples filing jointly)

Highest tax rate: 2.90% (on taxable income of more than $424,950)

Go to North Dakota's full state tax profile

The Peace Garden state taxes all retirement income, including military pensions. The good news is that its tax rates are among the lowest in the U.S., which makes the state tax-friendly for retirees in general.

SEE ALSO: The Most Tax-Friendly States in the U.S. 2018



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Personal Finance , Retirement



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