Idaho does tax military retirement pay, but most retirees can deduct a large portion of it from state taxable income. For the 2025 tax year, qualifying retirees may deduct up to $48,216 (single) or $72,324 (married filing jointly) under Idaho Code 63-3022A. A law passed in March 2025 opened the deduction to most military retirees regardless of age, though Social Security benefits reduce the deduction dollar for dollar.
How the Tax and Deduction Work
Idaho taxes all income its residents receive, including military pensions.1Idaho State Tax Commission. Individual Income Tax Basics The flat income tax rate is 5.3% for the 2025 and 2026 tax years.2Idaho State Tax Commission. Individual Income Tax Rate Schedule Your military retirement pay flows through from your federal return into your Idaho adjusted gross income like any other pension.
Relief comes through the retirement benefits deduction, which specifically lists U.S. military retirement pay as qualifying income. This is a deduction with a dollar cap, not a blanket exemption, and the cap gets reduced by any Social Security or Railroad Retirement benefits you receive.3Idaho State Legislature. Idaho Code 63-3022A – Deduction of Certain Retirement Benefits The deduction also cannot exceed the amount of military retirement pay you actually included in federal taxable income. If your pension is $30,000, that is the most you can deduct regardless of the published cap.
Who Qualifies After the 2025 Law Change
Before 2025, military retirees had to meet the same age or disability rules as other state pensioners. House Bill 40, signed in March 2025, created a separate and much broader pathway for military retirement pay.4Idaho State Legislature. House Bill 40 You now qualify by meeting any one of three conditions:
- You are classified as disabled at any age. Idaho recognizes SSA disability status, a VA service-connected disability rating of 10% or more, receipt of a VA nonservice-connected disability pension, or a physician-certified permanent disability with no expectation of improvement.
- You are 62 or older by the end of the tax year, with no additional conditions.
- You are under 62 and not disabled, but were employed during the tax year and earned enough income to be required to file a federal return.
The employment requirement is the real gatekeeper for younger retirees. If you retired from the military at 45 and are not working, you would not qualify until you turn 62 or meet the disability criteria. Most retirees who move into civilian jobs will clear this easily.3Idaho State Legislature. Idaho Code 63-3022A – Deduction of Certain Retirement Benefits
Deduction Amounts for 2025
The cap tracks the maximum Social Security benefit for the year and is adjusted annually for inflation. For the 2025 tax year (returns filed in 2026):
- Single filers: $48,216
- Married filing jointly: $72,324
The Idaho State Tax Commission publishes updated amounts each year based on Social Security cost-of-living adjustments. The 2026 tax year caps had not been released at the time of writing.5Idaho State Tax Commission. Form 39R Resident Supplemental Schedule 2025
The Social Security Offset
This is where retirees most often get surprised. Social Security and Railroad Retirement benefits you or your spouse receive reduce the available deduction dollar for dollar. A single filer receiving $20,000 in Social Security sees the maximum military retirement deduction drop from $48,216 to $28,216. If your combined Social Security benefits exceed the cap, the retirement benefits deduction goes to zero.3Idaho State Legislature. Idaho Code 63-3022A – Deduction of Certain Retirement Benefits
VA Disability Compensation Is Not Taxed
VA disability compensation is excluded from gross income at the federal level and never appears on your federal return. Because Idaho calculates state tax starting from federal adjusted gross income, VA disability payments are not taxed by Idaho either. No deduction is needed because the income is never included. This applies regardless of age, rating, or employment.
Military disability retirement pay from the Department of Defense is different. That pay is reported on your federal return and does appear in your Idaho income, but it qualifies for the retirement benefits deduction under the “disabled at any age” pathway.
Survivor Benefit Plan Payments
Unremarried surviving spouses receiving payments under the military Survivor Benefit Plan, Reserve Component Survivor Benefit Plan, or Retired Serviceman’s Family Protection Plan can also claim the deduction, but they follow the older, stricter rules rather than the expanded military pathway. The surviving spouse must be at least 65, or at least 62 and classified as disabled.5Idaho State Tax Commission. Form 39R Resident Supplemental Schedule 2025 Remarriage ends eligibility entirely, and the deduction is unavailable to those filing married filing separately.
How to Claim the Deduction
The deduction is claimed on Idaho Form 39R (Resident Supplemental Schedule), filed alongside Form 40.6Idaho State Tax Commission. Form 39R It is calculated on Line 8. You will need your IRS Form 1099-R showing the military retirement pay in your federal income,7IRS.gov. Form 1099-R and your SSA-1099 if you receive Social Security.
The form walks through the arithmetic: start with the maximum for your filing status, subtract Railroad Retirement benefits, subtract Social Security benefits, and compare the result to your qualified retirement income. The smaller of the two is your deduction. Tax software typically handles this automatically once your 1099-R and SSA-1099 are entered.
If You Live Outside Idaho
Federal law prohibits states from taxing the retirement income of nonresidents. If you left Idaho after retiring, your military pension is not subject to Idaho tax regardless of where you served.8Idaho State Tax Commission. Income Tax for Seniors and Retirees Part-year residents owe Idaho tax on retirement pay received during their months of Idaho residency.