10 Worst States for Military Retirees

5. Arizona

• Lowest tax rate: 2.59 percent (on up to $53,000 of taxable income for married joint filers and up to $26,500 for single filers)
• Highest tax rate: 4.5 percent (on more than $318,000 of taxable income for married joint filers and more than $159,000 for single filers)

When compared to other states listed here, the Sunset State offers a tax exemption when it comes to military pensions, but, unfortunately, it is quite small. The exemption applies to $3,500 of military retirement income. However, there’s still some good news worth mentioning: the state’s income tax rates are pretty low.

6. Montana

• Lowest tax rate: 1 percent (on up to $3,100 of taxable income)
• Highest tax rate: 6.9 percent (on more than $18,400 of taxable income)

When it comes to pension income, Montana offers an inflation-adjusted exemption; and this also includes military retirement pay. There’s a catch, though: veterans who enjoy big military pensions are unable to qualify.

For example, the maximum exemption is $4,300 for the 2019 tax year. If federal adjusted gross income is somewhere between $35,800 and $37,950 (no matter the filing status), note that this exemption is gradually minimized to zero.