How much is military retirement taxed?
Military retirement is a significant source of income for veterans and active-duty service members who have dedicated their lives to serving their country. However, one of the most common questions among retirees is how much of their military pension is subject to taxation. Understanding the tax implications of military retirement can help veterans plan their finances and make informed decisions about their post-military life.
The taxation of military retirement income varies depending on several factors, including the retiree’s total income, filing status, and the specific state in which they reside. Here’s a closer look at how military retirement is taxed:
1. Federal Taxation: The majority of military retirement income is subject to federal income tax. However, the amount of tax paid on this income depends on the retiree’s total taxable income, which includes not only the military pension but also other sources of income such as Social Security, investment earnings, and wages.
2. Taxable Percentage: The taxable percentage of military retirement income depends on the retiree’s total income. If the combined income (military retirement plus other taxable income) falls below a certain threshold, only a portion of the military pension is taxed. However, as the combined income increases, a larger percentage of the military pension becomes taxable.
3. Tax Brackets: Military retirement income is taxed at the same rates as other types of income, which means it is subject to the same tax brackets as regular income. This means that the tax rate on military retirement income can be as high as 37%, depending on the retiree’s total income.
4. State Taxation: The taxation of military retirement income at the state level varies significantly. Some states exempt military retirement income entirely, while others tax a portion of it. Additionally, some states offer special deductions or credits for military retirees.
5. Social Security Tax: While military retirement income is generally not subject to Social Security tax, retirees may be eligible for Social Security benefits based on their own work history. If a retiree is eligible for Social Security benefits, a portion of those benefits may be taxable.
In conclusion, the amount of military retirement taxed can vary widely depending on individual circumstances. It is essential for veterans to consult with a tax professional or financial advisor to understand the specific tax implications of their military pension and plan accordingly. By doing so, they can ensure that they are maximizing their retirement income while minimizing their tax burden.
