State Income Tax Information on SBP/SSBP/RCSBP/RSFPP
Annuities
Based on information provided by states, the Commonwealth of Puerto Rico, and the
District of Columbia, the following chart shows whether annuities under the Survivor Benefit Plan (SBP), the Supplemental
Survivor Benefit Plan (SSBP), the Reserve Component SBP (RCSBP), and the Retired Serviceman's Family Protection
Plan (RSFPP) are subject to state income tax. Because federal estate tax laws change, reliable information on the
applicability of state inheritance and estate tax laws should be obtained from a qualified tax consultant or by
contacting state tax authorities via mail, telephone or state web sites.
| State | Income Tax | State | Income Tax | State | Income Tax |
| Ala. | No | La. | No | Okla. | Yes7 |
| Alaska | None1 | Maine | Yes | Ore. | Yes28 |
| Ariz | Yes21 | Md. | Yes18 | Pa. | No |
| Ark. | Yes10 | Mass. | None1 | P.R. | Yes13 |
| Calif. | Yes24 | Mich. | Yes11 | R.I. | Yes19 |
| Colo. | Yes3 | Minn. | Yes | S.C. | Yes12 |
| Conn | Yes | Miss. | No | S.D. | None1 |
| Del. | Yes | Mo. | Yes14 | Tenn. | None1 |
| D.C. | Yes15 | Mont. | Yes25 | Texas | None1 |
| Fla. | None1 | Neb. | Yes19 | Utah | Yes17 |
| Ga. | Yes16 | Nev. | None1 | Vt. | Yes19 |
| Hawaii | No | N.H. | Yes22 | Va. | Yes20 |
| Idaho | Yes5 | N.J. | Yes23 | Wash | None1 |
| Ill | No | N.M. | Yes | W.Va. | Yes26 |
| Ind. | Yes8 | N.Y. | No | Wis. | Yes4 |
| Iowa | Yes | N.C. | Yes9 | Wyo. | None1 |
| Kan. | None1 | N.D. | Yes2 | ||
| Ky. | None27 | Ohio | Yes6 |
Footnotes:
| 1.No tax imposed. 2. $5,000 exemption for ages 50 and older (reduced by Social Security benefits) on Form 37 only (no exemption on Form 37-S). 3.$20,000 annual exemption. 4.If annuitant receives payments from a federal retirement system as a beneficiary of an individual who was retired from a federal retirement system before Jan. 1, 1964, or was a member of a federal retirement system on Dec. 31, 1963, retiring at a later date, then full exemption is granted to the annuitant. 5.Variable exemption at age 65 (62 if disabled). The deduction cannot exceed $25,182 for individuals filing a joint return or $16,788 for individuals filing a single return. This maximum deduction must be reduced by any retirement benefits paid by Social Security or Federal Railroad Retirement Act. See current state tax instructions. 6.Graduated tax credit up to $200. See current state tax instructions. 7.Up to $5,500 annual exemption. See current state tax instructions. 8.$2,000 exemption at age 60. 9.See North Carolina under "Other Considerations". 10.$6,000 annual exemption. 11.Qualified exemption to the surviving spouse but no exemption for a child beneficiary. See current state tax instructions. 12.Same as military retired pay. 13.$5,000 annual exemption up to age 60; $8,000 annual exemption for ages 60 and older. 14.$6,000 exemption, depending on filing status and Missouri adjusted gross income. See current state tax instructions. 15.First $3,000 exempt if 62 on or before Dec. 31, 1999. 16.$13,000 exemption for people 62 or older permanently and totally disabled. 17.Deduction up to $4,800 if under 65. $7,500 annual exemption for those 65 or older; however, exemptions are limited by the amount of adjusted gross income. Exemption does not apply to child/children beneficiaries. See current state tax instructions. 18.Maximum exclusion is $16,100, which is reduced by Social Security Act benefits and is available for annuitants 65 or older or who are totally disabled or the spouse of an annuitant who is totally disabled. 19.Same as federal tax treatment. 20.See current state tax instructions. 21.$2,500 exemption. For person receiving more than one federal annuity, only an exclusion of $2,500 for all can be given. See current tax instructions for possible reduction of taxable income by RSFPP, SBP, RCS or SSBP costs. 22.Taxability depends upon the recipient's (1) relationship to the decedent and (2) residency at time of spouse's death. See current state tax instructions. 23.No tax imposed for those 62 years of age or older or disabled. 24. See CA under "Other Considerations". 25.Recipient can exclude up to $3,600 if his or her federal AGI is less than $30,000. The exclusion is phased out $2 for every $1 of income when the federal AGI is greater than $30,000. The exclusion is fully phased out when the federal AGI reaches $31,800. 26.West Virginia Code provides for a modification reducing federal adjusted gross income by the first two thousand dollars of benefits received from all forms of military retirement to the extent included in gross income for federal income tax purposes. 27.Survivor Annuities for those retiring before January 1, 1998 will never be subject to Kentucky income tax. For those retiring after January 1, 1998, a portion of their retirement representing how much time they worked after January 1, 1998 will be added with any other retirement pay they may receive. See state tax instructions. 28.See OR under "Other Considerations". |
Federal/State Tax Treatment of Uniformed Services Annuities
Nonresident Alien SBP/SSBP/RCSBP/RSFPP Tax
Nonresident alien Uniformed Services annuities beneficiaries living in foreign countries are subject to a withholding
tax by the United States on their monthly SBP/SSBP/RCSBP/RSFPP payment (26 U.S. Code 1441a). The withholding tax
rate is 30 percent of the payable annuity and is not refundable.
The tax levy is not part of SBP/ SSBP/RCSBP/RSFPP laws but results from individual tax treaties between the U.S. government and various foreign countries. The 30 percent is a fixed tax that must be withheld by the paying Defense Finance and Accounting Service (DFAS) — Denver Center for DoD personnel or the respective pay centers for non-DoD personnel.
However, tax treaties with individual countries can reduce this 30 percent tax rate. The Internal Revenue Service (IRS) has determined that the payment of SBP, SSBP, RCSBP, or RSFPP is not subject to federal income tax withholding (FITW) if the payment is to a person who resides in and is a citizen of a country that has an income tax treaty to which the United States of America is a party. Based on available information, the countries with these tax treaties are Australia, Belgium, Cyprus, Egypt, Finland, France, Germany, Iceland, Korea, Morocco, Netherlands, Norway, Pakistan, Romania, Thailand, Tobago, Trinidad, and the United Kingdom. For Italy, if the SBP recipient is an Italian national, the SBP annuity is not taxable. If the recipient is not an Italian national, the annuity is taxable.
To secure the exemption from FITW based upon a treaty or tax convention, the nonresident alien annuitant must file Treasury Form 1001, "Ownership, Exemption or Reduced Rate Certificate." For more information, please review IRS Publication 776, Table 6-1 and contact DFAS — Denver Center or the respective pay center or consult a legal assistance officer at a nearby military installation. For more information on the overall nonresident alien tax, write to the Assistant Commissioner for Internal Affairs (Internal Revenue Service), Attn: IN:C:TPS, 950 L'Enfant Plaza, S.W., Washington, DC 20024-2123.
Gift Tax
The election upon retirement by a uniformed services retiree to provide for a survivor benefit annuity is not considered
a transfer subject to the gift tax where the election is made under a retirement plan described in Chapter 73,
Title 10, U.S. Code (Annuities Based on Retired or Retainer Pay). However, if any portion of the value of the survivor
annuity is attributable to amounts paid or contributed (deposits) by the member under sections 1438 or 1452(d)
(both dealing with periods of time that a retiree was not entitled to military retired pay), such portion is treated
as a gift and is subject to the federal gift tax.
SBP/SSBP/RCSBP/RSFPP Direct Remittance
If a retiree waives payment of retired pay in favor of another federal benefit and continues RSFPP or SBP or SSBP
or RCSBP participation by making direct remittances each month to the Defense Finance and Accounting Service -
Cleveland Center or respective pay centers (for non-DoD personnel), the retiree receives no immediate tax credit
for the premiums paid. However, the subsequent military annuity will be exempt from federal income tax until the
annuity recipient recovers the total amount of the military retiree's direct payments. This exemption would also
apply in the case of a military retiree who accepted VA disability compensation in lieu of military retired pay
and made military annuity payments by direct payments from the VA.
SBP/SSBP/RCSBP/RSFPP Cost Deductions from Retired Pay
In all states, taxable retired pay is reduced by the annuity cost, the same as on federal income tax returns. Forms
1099-R issued by the Defense Finance and Accounting Service - Cleveland Center or respective pay centers show net
taxable retired pay (after deductions of the annuity cost).
State Income Tax Withholding on Military Retired Pay
Section 654, P.L. 98-525, approved Oct. 9, 1984, authorized the voluntary withholding
of state income tax for military retired pay. Under this law, each state must enter into an agreement with the
Department of Defense (DoD) before withholding can begin.
To direct the Defense Finance and Accounting Service -- Cleveland Center for DoD personnel or the respective pay
center for non-DoD personnel to withhold state income tax, the retiree's request must be made in writing and must
contain the retiree's name, Social Security number, current address, amount to be deducted from the retired pay
and the state designated to receive withholding. The request must be signed by the retiree or legal representative.
The monthly amount to be withheld must be an even dollar amount in excess of $10 or the state minimum withholding
amount.
Requests must be submitted to (Army, Navy, Marine Corps and Air Force) Defense Finance and Accounting Service -- Cleveland Center, Code RO, P. O. Box 99191, Cleveland, OH 44199-1126; (Coast Guard) Commanding Officer (RPD), U.S. Coast Guard Human Resources Service and Information Center, 444 S.E. Quincy St., Topeka, KS 66683-3591; (USPHS) Compensation Branch/CPOD/PHS, Room 4-50, Parklawn Bldg., 5600 Fishers Lane, Rockville, MD 20856; (NOAA) Commanding Officer (RET), USCG Pay and Personnel Center, 444 S.E. Quincy St., Topeka, KS 66683.
Retirees can change their federal withholding by submitting an IRS Form W-4 to the pay center (do not use an IRS Form W-4P for this purpose).
Based on information available, the following states are participating in this program: Arizona, Arkansas, California, Colorado, Connecticut, Delaware, District of Columbia, Georgia, Idaho, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, New Mexico, New York, N. Carolina, N. Dakota, Ohio, Oklahoma, Oregon, Rhode Island, S. Carolina, Utah, Vermont, Virginia, W. Virginia, and Wisconsin.
Page 1 | Page 2 | Continue To Page 4 | Page 5 |
Information provided courtesy of:
