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Understanding Military Retirement Pay

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Taxation

In most cases, retired pay is fully taxable. The amount of taxable income is reduced by SBP costs and any waiver for VA compensation or deduction for dual compensation (federal civil service employment). The amount deducted from your pay for federal withholding tax is based on the number of exemptions you indicate on either your pay data form or your W-4 after retirement.

To change your withholding tax status or to request an additional withholding amount after retirement:

  • You must forward an IRS Form W-4 to DFAS - Cleveland Center.
  • Use Employee Member Self Service (See DFAS Web Site)
  • Air Force retirees can visit their local Financial Services Office or Air Force Base to change their Federal Income Tax Withholding information. Some Navy Personnel Support Detachments (PSDs) and Army Retirement Service Offices (RSOs) also offer this service.

Disability retirement payments (Not VA Disability) are taxable for those members with either total military service after September 24, 1975, or who were in the service before this date but were not on active military service or under binding written commitment to become a member of the armed services on September 24, 1975.

Disability retirement payments are nontaxable for those members with military service or under binding written commitment to become a member of the armed services on September 24, 1975, or members whose disability retirement has been deemed as combat-related, regardless of their active military service.

If your disability retirement is calculated based on the second method (See above), only that portion of your pay which would have been received under the actual percentage of disability calculation is nontaxable The amount of taxable income may be further reduced by any SBP cost and deduction for dual compensation (federal employment).

If your disability retirement was combat-related, you are not subject to the provisions of dual compensation. If, after retirement, you waive a portion of your pay in favor of VA compensation, your taxable income will be reduced by the amount of VA compensation or the amount of percentage of disability calculation, whichever is greater.

State tax withholding is on a voluntary basis and must be in whole dollar amounts. $10.00 is the minimum monthly amount. Before making your request in writing, you must contact the taxing authority in the state in which you have established residence to determine if you are required to pay state income tax.

If you are an Air Force retiree, your local Financial Services Office at the Air Force Base. Some Navy Personnel Support Detachments (PSDs) and Army Retirement Service Offices (RSOs) can adjust your state tax withholding information. Navy personnel should check with their local PSD to see if this service is available.

Retired/retainer pay is not subject to FICA (Social Security) deductions, nor is your retired pay reduced when you become entitled to social security payments.

Garnishments/Withholdings

Unlike active duty pay, military retired/retainer pay cannot be garnished for commercial debts (i.e. credit cards, automobile loans, ect.) Military retirement pay can, however, be garnished for alimony, child support, IRS Tax Levies, and debts owed to the government (i.e. student loans, PX/BX Deferred Payment delinquencies, Officer/NCO Club payment delinquencies, ect.)

Additionally, under the provisions of the Uniformed Services Former Spouse Protection Act (USFSPA), state courts *may* treat military retired pay as joint property between the member and the spouse during divorce proceedings.

Contacting DFAS

Once retired, it is important that you keep DFAS informed of any changes in your account. Toll-Free Number. The toll-free number which may be used for any calls made within the Continental United States, including Alaska and Hawaii is 1-800-321-1080. The commercial number for calls made from outside these areas is (216) 522-5955, or DSN 580-5955. All telephone lines are staffed Monday through Friday from 7:00 a.m. - 7:30 p.m., Eastern Time. The above numbers can be used for general questions about your account and notifications such as a change of address. You must sign requests that involve monetary changes. Therefore, this type of change cannot be handled by phone. If the monetary change will prevent an overpayment to you, an exception will be made to this rule.

DFAS Mailing Address. The address that must be used for requests for monetary changes is:

Defense Finance & Accounting Service, Cleveland Center Retired Pay Operations (Code PPR), PO Box 99191, Cleveland OH 44199-1126 6.

You can also visit the DFAS web site at http://www.dfas.mil 

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