You might be able to claim a deduction on your state tax return that you
can’t on your federal; for example, a few states, like Illinois, exempt
all or part of military income. Your state tax return will spell out all
the additions and deductions you must make. Income from investments can
vary widely at the state level, as well.
For
example, some states don’t differentiate between ordinary income and
capital gains (the latter typically is taxed at a lower federal rate),
while others might tax sales of mutual funds but not individual stocks.
Seniors often receive favorable treatment regarding their state tax
bills. Retirement income — military or otherwise — may be fully or
partially exempt; even your capital gains may be tax-free. Local
homestead exemptions may give the elderly a break on their property
taxes, which is often the largest tax bill for retirees who no longer
generate income from a job.
Following are the vet income exemptions for those states that do allow
one:
-
Arizona:
Up to $2,500 of
retired pay/survivor benefits are exempt.
-
Arkansas:
Up to $6,000 of
retired pay/survivor benefits are exempt.
-
Colorado:
$20,000
exemption for retirees ages 55 to 64, $24,000 if over 65.
-
Connecticut:
50 percent of
retired pay/survivor benefits are exempt.
-
Delaware:
$2,000
exemption for retirees under 60, $12,500 if 60 or older.
-
District of Columbia:
$3,000
exemption for retirees 62 or older. No survivor benefit exemption.
-
Georgia:
$35,000
exemption for retirees ages 62 to 64, $65,000 if 65 or older.
-
Idaho:
$30,396/$45,594
(single/married filing jointly) exemption for retirees age 65 or
older (disabled and 62 or older).
-
Indiana:
$5,000
exemption for retirees/survivors age 60 or older.
-
Iowa:
$6,000/$12,000
exemption for retirees single/married age 55 or older.
-
Kentucky:
No tax if
retired before Jan. 1, 1998. $41,110 exemption if retired after Dec.
31, 1997.
-
Maine:
$10,000
exemption for retired pay.
-
Maryland:
$5,000
exemption for retired pay.
-
Missouri:
For 2015, 90
percent of military retirement is exempt. On Jan. 1, 2016, 100
percent of military retirement pay will be exempt.
-
Montana:
$3,900 maximum
exemption if federal adjusted income is $32,480 or less.
-
Nebraska:
Staring in
2015, military retirees may make a one-time election within two
calendar years after retirement date; choose to exclude 40 percent
of military retirement benefit income for seven consecutive taxable
years or 15 percent of military retirement benefit income for all
taxable years beginning with the year the retiree turns 67.
-
New Mexico:
State offers
low- and middle income exemption. Maximum exemption is $2,500. To
qualify, adjusted gross income must be $36,667 or less (single
filers), $27,500 or less (married filing separately), or $55,000 or
less (married filing jointly or head of household).
-
North Carolina:
Retired pay and
survivor benefits exempt if retiree had five or more years of
creditable service as of Aug. 12, 1989; others may take $15,000 for
married filing jointly, $12,000 head of household, or $7,500 for
single or married filing separately.
-
Oklahoma:
Military
retirees may exclude the greater of 75 percent of their retirement
benefits or $10,000 (but not to exceed the amount included in their
federal adjusted gross income).
-
Oregon:
If all military
service occurred before Oct. 1, 1991, retirement pay is 100-percent
exempt. If all service occurred after Oct. 1, 1991, then none is
exempt. If service occurred both before and after Oct. 1, 1991,
retirees must compute the percentage of exempt retired pay, which
will remain the same from year to year. Divide months of service or
points earned before Oct. 1, 1991, by total months of service and
round the percentage to three places (for example, 0.4576 would be
45.8 percent).
-
South Carolina:
Below age 65,
up to $3,000 is exempt. If 65 or older, up to $10,000 is exempt.
-
Utah:
Below age 65, 6
percent of retired pay may be taken as a tax credit (or $288,
whichever is less). If 65 or older, may claim $450/$900 tax credit
(single/married), subject to income eligibility limits ($16,000 for
married filing separately, $25,000 for singles, or $32,000 for
married filing jointly).
-
Virginia:
Retirees age 65
and older can deduct up to $12,000 a person of retired income,
subject to income eligibility limits, reduced $1 for every $1 that
federal adjusted gross income exceeds $50,000 (single filers) or
$75,000 (married filers).
-
West Virginia:
$2,000 exempt,
plus an additional decreasing modification for military retirement
up to $20,000.
Note:
State laws are subject
to change; contact your state’s department of veterans affairs for
up-to-date information. States not listed have no exemption.
[Source: MOAA State
Report Card | Nov 2015 ++]
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