Does Iowa Tax Military Retirement Pay?
Military retirement pay is a significant source of income for many veterans and active-duty service members. However, one question that often arises is whether Iowa taxes military retirement pay. In this article, we will delve into the topic and provide a comprehensive overview of Iowa’s tax policy regarding military retirement pay.
Iowa’s Tax Policy on Military Retirement Pay
Iowa does tax military retirement pay, but there are certain conditions and exceptions that may apply. According to Iowa Code § 421.7, military retirement pay is subject to state income tax. This means that veterans and active-duty service members who receive military retirement pay must include it in their taxable income when filing their Iowa state income tax returns.
Exceptions and Exemptions
While Iowa generally taxes military retirement pay, there are a few exceptions and exemptions that may apply:
1.
Home of Record Exception:
If a military member’s home of record is not Iowa, and they were stationed in Iowa for less than five years, they may be eligible for an exemption from Iowa’s military retirement tax. This exception is designed to recognize the fact that some military members may only serve in Iowa temporarily.
2.
Overseas Service Exception:
Military members who served overseas for at least 20 years or more may be eligible for an exemption from Iowa’s military retirement tax. This exemption acknowledges the significant contributions of those who have served overseas for an extended period.
3.
Survivor’s Benefit Plan (SBP) Exception:
If a military member’s retirement pay is derived from the Survivor’s Benefit Plan, it may be exempt from Iowa’s military retirement tax. This exception is intended to provide financial support to surviving family members.
Reporting Military Retirement Pay
When filing an Iowa state income tax return, military members must report their military retirement pay as part of their taxable income. To do this, they will need to provide their military retirement pay information on Schedule M-1, which is the Iowa Military Retirement Exemption Schedule. This schedule allows military members to claim any applicable exemptions or exceptions.
Conclusion
In conclusion, Iowa does tax military retirement pay, but there are exceptions and exemptions that may apply. Veterans and active-duty service members should review their specific circumstances and consult with a tax professional or the Iowa Department of Revenue to ensure they are correctly reporting their military retirement pay on their state income tax returns. By understanding Iowa’s tax policy on military retirement pay, service members can navigate the tax system more effectively and make informed decisions regarding their financial planning.
