Is it Taxable?
Military retired pay is paid for many different reasons under many different laws. There are differences in the types of pay a military retiree might receive and the tax laws that apply to them. Whether a portion or all of an individual’s military retired pay is subject to federal income taxes depends on his/her individual circumstances.
A military retiree can either use myPay or send an IRS Form W-4 to alter the amount DFAS withholds for federal income taxes from their military retired pay.
An individual’s choice to have no withholding for federal taxes does not impact whether the individual’s military retired pay is actually subject to federal income taxes. Ultimately, the IRS will determine the amount of taxes owed on the military retired pay.
The following list of deductions and exemptions are some of the more common concerns among military retirees:
Survivor Benefit Plan and Retired Serviceman's Family Protection Plan Premium Deductions:
Premiums paid to fund survivors’ benefits under these plans are treated as deductions from your taxable income.
Amounts collected to recoup overpayments of retired pay, retroactive Survivor Benefit Plan premium adjustments and some retroactive Department of Veterans Affairs payments are treated as deductions from your taxable income.
Upon completion of debt repayments, DFAS will mail you a tax certificate stating that you have repaid a valid debt over a specific period and stating the amount repaid. You can then use that certificate to adjust tax returns filed during the repayment period by claiming a deduction for the amount paid.
If you retired under a disability law (Temporary Disability Retirement List or Permanent Disability Retirement List), your retired pay will be fully non-taxable if your pay is calculated based upon your military (not VA) disability percentage and you meet one of the following conditions:
- You were in the military or under a contractual obligation to join the military on September 24, 1975, or
- Your military disability rating is combat-related
The welcome letter you received from DFAS when you first retired indicates whether your pay is computed using your military percentage of disability or your years of service.
VA Compensation Deduction:
For most members who retired under a non-disability law, retired pay taxable income is simply reduced by the amount of any VA compensation received. For members who retired under the Temporary Disability Retired List or the Permanent Disability Retired List, retired pay taxable income is reduced by whichever of the following is greater:
- The amount of VA compensation received or
- A tax-exempt amount of gross pay determined by the following formula:
Military (not VA) disability percentage: %
x (times) Active Duty pay at the time of retirement:
= (equals) Initial amount of tax-exempt gross pay
Initial amount of tax-exempt gross pay:
x (times) applicable Cost-Of-Living-Adjustment (COLA): %
= (equals) Current tax-exempt gross pay
This information is reported by DFAS on your 1099-R.
Combat Related Special Compensation (CRSC): These payments are non-taxable.
Concurrent Retirement Disability Payments (CRDP): CRDP is a restoration of your retired pay, not a separate entitlement. Therefore, if your retired pay is taxable so is any CRDP payments you receive. If your retired pay is non-taxable, your CRDP is also non-taxable.
Former Spouse Deductions: The retiree is not liable for taxes on payments made to their former spouse. The Uniformed Services Former Spouse Protection Act defines community property payments established in accordance with a court order and approved by the DFAS legal department as pre-tax deductions.
Page Updated Jan 27, 2022