States That Don’t Tax Military Retirement (2026 List)

2025 Update: Big tax wins landed for military retirees this January-New Hampshire officially eliminated income tax, South Carolina now grants a full 100% exemption on military retirement, and Vermont expanded its partial exemption for households with AGI under $125,000.

These three changes alone shift more than 142,000 retirees into lower-tax brackets nationwide (new 2025 VA demographic estimate).

And here’s the part most people overlook:

Choosing a tax-friendly state isn’t just about paying less today-it directly increases your homebuying power, your equity growth speed, and your monthly cash flow.

Here’s what most people overlook:

Choosing a tax-friendly state doesn’t just save you money - it directly increases your VA loan buying power.

For example, skipping state pension tax puts more money into your debt-to-income ratio, which lenders use to calculate how much home you qualify for. If you want to see how this impacts your own numbers, you can check the updated 2025 BAH and income rules using our guide on BAH rates.

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How much do you keep by living in a tax-free state?

That’s money that could be reducing your VA mortgage payment, building equity faster, or even improving loan approval odds. If you’re wondering how tax savings convert into actual homebuying power, you can explore examples inside our VA loan benefits guide.

The average retiree unknowingly gives up $200–$300/month in pension taxes-money that could be building equity or reducing your VA loan payment. Staying in a taxed state is essentially paying a “retirement penalty.”

“Doesn’t moving cost more?”

Not usually. For many retirees, one year of avoided pension tax covers most relocation costs-and keeps saving you money every year after.

Before you choose where to buy, run your numbers through our Rebate Calculator to see exactly how much more home you can afford in a tax-free or tax-reduced state.

Curious how much extra home your tax savings buy you? Get pre-approved in minutes with reAlpha and see your numbers instantly.

Each month of waiting = $225–$300 in lost take-home pay.

If you just want the quick answer to “what states don’t tax military retirement?” - here it is.

When people look for states that don’t tax military retirement pay/income/pensions, military retirement tax-free states, or states exempt military retirement, they’re usually looking for one of three buckets:

These states don’t tax income at all, so your military pension is tax free:

• Alaska (AK)
• Florida (FL)
• Nevada (NV)
• South Dakota (SD)
• Tennessee (TN)
• Texas (TX)
• Washington (WA)
• Wyoming (WY)
• New Hampshire (NH) – 2025 update: now no income tax

If you’re considering buying a home in one of these states, especially Texas, you’ll want to understand how affordability impacts your long-term plan. Our Texas housing guide walks through real budget examples using a VA loan: How to buy a house in Texas.

Your tax savings directly increase how much home you qualify for with a VA loan. See your updated 2025 numbers instantly.

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→ Run the Rebate Calculator

Your military retirement income is fully exempt (or functionally treated as such):

AL, AR, AZ, CO, DE, GA, ID, IL, IN, IA, KS, KY, LA, MD, MI, MS, MO, NE, NJ, NY, ND, OH, OK, PA, SC (NEW 2025 full exemption), UT (military exemption), VA, WI, plus MT with important notes below.

C. Partial Exemptions (2025)

• Vermont (VT): Partial exemption for AGI < $125K
• Montana (MT): Age-based and income-limited exemption
• North Carolina (NC): Bailey Exclusion for certain qualifying retirees

Your actual tax bill can dramatically change based on exemptions. To see how this affects your potential mortgage budget, review the debt-to-income rules in our VA DTI guide: VA loan debt-to-income ratio guide

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If you want a real calculation of how much home these savings buy you, try running scenarios through pre-approval calculators found in our mortgage preparation guide: Mortgage pre-approval essentials

Over 10 years, that’s $22,500–$40,000 you either keep in a tax-free military retirement state - or lose to state taxes.

Even if moving feels expensive, one to two years of avoided tax can more than offset relocation costs, while boosting your homebuying budget with a VA loan.

If you’re comparing which of these states offer the strongest buying power, don’t forget to factor property taxes. Our national guide on effective tax rates helps you calculate the real cost of homeownership: Property tax impact on home buyers

Here’s the fast breakdown of what changed - and how it hits your wallet.

• South Carolina – NEW Full Exemption (2025): SC now fully exempts military retirement pay. For many retirees, that’s like getting a 5–6% raise overnight.
• New Hampshire – No Income Tax (2025): With its 2025 change, NH joins the no-income-tax club, meaning 100% of your military pension is tax-free at the state level.
• Vermont – AGI Threshold Update: VT expanded its partial exemption for retirees with AGI under $125,000. Above that? Expect more of your pension to be taxed.
• Arizona & Georgia – High-Interest States: Both offer favorable treatment on military pensions and often pair well with strong BAH + affordable housing..
• Virginia Military Retirement Tax Exemption 2025: VA has been gradually improving exemptions and remains a top contender when you factor in VA jobs, bases, and healthcare access.
• North Carolina Military Retirement Exemption 2025: NC’s Bailey Exclusion still protects qualifying retirees, but not everyone qualifies.

If you want to understand how these changing exemptions affect VA loan approvals, see our step-by-step breakdown here: VA loan eligibility

• New full exemption (like SC 2025) on a $60,000 pension at 5% tax rate = $3,000/year avoided loss
• Over 10 years, that’s $30,000 that can go into equity, renovations, or debt payoff instead of state coffers.

“These 2025 law updates look small.”

Not really-stacked over a decade, even a 3–5% tax difference can decide whether you retire with paid-off property or lingering debt.

If you're comparing military retirement taxes by state, this is the 2025–2026 quick-scan table veterans use to decide where they’ll keep the most of their pension.

Over a decade, choosing the wrong state can quietly drain $15,000–$45,000 in pension taxes. That’s the difference between owning more equity vs. falling behind.

Moving to a full-exemption or no-income-tax state can add $150–$350/month to your real take-home pay - which lenders apply directly to your VA loan approval.

Use these tools while comparing states:

• Affordability Calculator
• Explore Homes in Your Target State
• Compare Loan Types (FHA, VA, USDA)

Get pre-approved now and see exactly how your tax savings convert into buying power.

https://www.realpha.com/mortgage/form/va-loan-1

Below is a 2026-ready table engineered to stay accurate even as states update exemptions.

Ranking factors:

• Tax treatment of military retirement
• BAH strength (2026 projections)
• Housing affordability
• VA healthcare + base access
• Veteran benefits at the state level

Choosing a top-ranked 2026 state often saves:

• $2,000–$4,500/year in pension taxes
• $150–$400/month in combined housing + tax benefits
• $20,000–$40,000 over 10 years (equity you keep instead of losing)

These are real differences that directly raise your VA homebuying power.

Your biggest money mover.

• Tax-free states = $2,000–$4,500/year saved.
• Full or partial exemptions vary widely by state.

• Low-cost states stretch your pension 20–30% further.

• Housing, groceries, utilities, insurance - it all compounds.

• High-BAH states + VA loans = larger buying power.
• A $300/month BAH difference = $3,600/year more flexibility.

Proximity to VA hospitals, clinics, and major bases cuts travel time and boosts long-term quality of life.

Often overlooked but critical.

• A 1% vs. 2% property tax rate = $3,000/year difference on a $300K home.

Warmer climates + close bases = better year-round access to services, family, commissary, and community.

Early projections show:

• Moderate BAH increases in high-cost metros (2–4% range)
• Stable or slight increases in mid-tier markets (1–2%)
• Strongest boosts near fast-growing military hubs (San Antonio, Tampa, Raleigh)

Because BAH is designed to track rental markets, 2026 is expected to favor Sunbelt and Southeast states - many of which also happen to be tax-free or fully exempt for military retirement.

When you combine:

• BAH (untaxed allowance),
• Tax-free military retirement, and
• Lower cost-of-living states,

you stack three income boosters at once.

For most retirees, that means an extra $300–$700/month in practical spending power - without changing rank, pay grade, or pension.