Does Pennsylvania Tax Military Retirement Pay?

Pennsylvania does not tax military retirement pay. The state’s Tax Reform Code leaves retired and retainer pay out of its definition of taxable compensation, so the flat 3.07 percent personal income tax rate does not apply, regardless of your age, rank, branch, or years of service.¹

The exemption is automatic. You don’t file a separate form, apply for a certificate, or meet an age threshold. If your payments come from a qualified military retirement plan calculated under Chapter 71 of Title 10 of the U.S. Code, the Department of Revenue treats them as non-taxable.¹

What the Exemption Covers

The exclusion is broad. It applies to every branch of the military, including the National Guard and reserves, and it covers retirement paid after 20 years of active duty, medical retirement, and reserve retirement pay that begins at age 60.² A 40-year-old medically retired sergeant and a 70-year-old retired colonel both receive the same full exclusion. There is no income cap and no phase-out.

Related military payments are also outside Pennsylvania’s tax:

VA disability compensation and disability retirement pay for service-connected injuries or illness, whether combat or non-combat in origin.²
Payments under the Survivor Benefit Plan, the Reserve Component Survivor Benefit Plan, and the Retired Serviceman’s Family Protection Plan. Surviving spouses and dependents receiving these annuities do not report them on the PA-40.²
Combat-Related Special Compensation, which is non-taxable at the federal level and therefore in Pennsylvania as well.³
Concurrent Retirement and Disability Pay. CRDP restores retired pay that was previously waived to receive VA disability compensation, so it carries the same tax treatment as underlying military retired pay. It remains federally taxable but is exempt in Pennsylvania.³

Compared with Pennsylvania’s other retirement income exemptions, the military rule is unusually simple. Distributions from a 401(k) or IRA are excluded only once you meet the plan’s normal retirement age or service requirements. Military retired pay under Title 10 has no such conditions attached.

Federal Taxes Still Apply

The Pennsylvania exemption is a state exemption only. Military retirement pay based on age or length of service is fully taxable as federal income.⁴ DFAS withholds federal income tax from your retired pay each month, and you report the full amount on your federal Form 1040, lines 5a and 5b.⁵

You can adjust federal withholding through the DFAS myPay portal or by submitting a new IRS Form W-4 to DFAS. Military retirement pay is not considered earned income for Social Security purposes, so no FICA is withheld.⁴ VA disability compensation and Dependency and Indemnity Compensation are tax-free at both federal and state levels.

How to File the PA-40

Do not enter your military retirement pay on Line 1a of the PA-40. That line is for taxable compensation, and the form instructions say to exclude exempt income such as qualifying retirement benefits and combat zone pay.⁶

If you file through myPATH, watch the data-entry step. The system may pull retirement figures from your federal return, and you have to verify that the military retirement amount is not carrying into the taxable compensation field. This is the most common filing mistake Pennsylvania military retirees make: letting auto-populated data inflate state taxable income that should have shown zero.

Pennsylvania’s Schedule W-2S is used to report compensation and distributions from retirement plans. You can list your military retirement distributions in Part B of the W-2S while ensuring the non-taxable amount does not flow to Line 1a. DFAS issues a Form 1099-R each year, available through myPay in late December and mailed in mid-to-late January.⁷ Keep it with your records as your documentation that the income qualifies for the exclusion.

You still file a PA-40 by April 15 if you had other Pennsylvania taxable income during the year, such as wages from a civilian job, interest, or investment gains subject to the 3.07 percent rate.⁸

Military Spouses

If you are the spouse of an active-duty service member and you live in Pennsylvania solely because of your spouse’s orders, the Military Spouses Residency Relief Act may let you avoid Pennsylvania income tax on your wages. Three conditions must all be true: the service member is in Pennsylvania under military orders, you are in the state solely to be with your spouse, and you share the same legal domicile as your spouse in another state.⁹

Meet all three, and you can source your non-military compensation to your state of domicile. You must actually maintain domicile in another state; preferring to be taxed elsewhere is not enough.

Residency and Moving to Pennsylvania

Pennsylvania’s personal income tax applies to domiciliaries and statutory residents. You are a domiciliary if you maintain a permanent home in the state and intend to return to it whenever you are away. A statutory resident maintains a permanent place of abode in Pennsylvania and spends more than 181 days in the state during the tax year.¹⁰

For a retiree, the practical effect is straightforward. If Pennsylvania is your home, you file a PA-40 and exclude your military retirement pay. If you moved to Pennsylvania after retiring and established domicile here, the exemption applies immediately; there is no waiting period. Active-duty pay earned while stationed outside Pennsylvania is also excluded from state tax, which matters if you are still serving while drawing retirement from a prior period of service.⁹

1
Commonwealth of Pennsylvania. Gross Compensation – Department of Revenue
2
The Official Army Benefits Website. Pennsylvania Military and Veteran Benefits
3
Defense Finance and Accounting Service. Is it Taxable?
4
The Official Army Benefits Website. Federal Taxes on Veterans Disability or Military Retirement Pensions
5
IRS.gov. Instructions for Form 1040 (2025)
6
Pennsylvania Department of Revenue. 2025 Pennsylvania Income Tax Return (PA-40)
7
Defense Finance and Accounting Service. Getting Your 1099-R
8
Commonwealth of Pennsylvania. Tax Rates – Department of Revenue
9
Commonwealth of Pennsylvania. Military Pay for PA Personal Income Tax Purposes
10
Commonwealth of Pennsylvania. Determining Residency for PA Personal Income Tax Purposes