Delaware does tax military retirement pay, but retirees can exclude up to $12,500 of that pension from their Delaware taxable income. Anything above that amount is taxed at Delaware’s graduated income tax rates, which top out at 6.6% on income over $60,000.1Division of Revenue – State of Delaware. Tax Rate Changes The exclusion is available regardless of age, though it works differently for retirees under 60 than for those 60 and older.
How the $12,500 Exclusion Works
The exclusion sits in Title 30, ยง 1106 of the Delaware Code, which lists subtractions from federal adjusted gross income.2Justia. Delaware Code Title 30 1106 – Modifications The statute lets you take “the greater of” a $2,000 general pension exclusion or a $12,500 military-specific exclusion, so every military retiree under 60 effectively lands on $12,500.
If you are 60 or older, Delaware gives you a single $12,500 subtraction that covers all pension and eligible retirement income combined. There is no separate military line on top of it. Your military pension shares that cap with any private pension, IRA distribution, 401(k) withdrawal, or other qualified retirement income you receive.3Delaware Division of Revenue. Personal Income Tax FAQs
For purposes of the exclusion, a United States military pension means retirement pay from service in the Army, Navy, Air Force, Marine Corps, Space Force, Coast Guard, the commissioned corps of NOAA, the commissioned corps of the Public Health Service, or the National Guard.2Justia. Delaware Code Title 30 1106 – Modifications
What the Exclusion Does Not Do
The most common mistake is assuming the military pension exclusion stacks on top of the general pension exclusion. It does not. Each taxpayer gets one pension exclusion, and the “greater of” language means you choose the larger figure rather than adding them.4State of Delaware Division of Revenue. PIT-RES Instructions
For a retiree under 60 with a $30,000 military pension and $15,000 in 401(k) distributions, that means excluding $12,500 of the military pension and paying Delaware tax on the remaining $32,500. For a retiree 60 or older with the same income, the $12,500 can be spread across any mix of military and civilian retirement income, but the total excluded still cannot exceed $12,500.
Spouses are treated individually. A married couple where each spouse receives their own pension can claim a separate exclusion, so the household could exclude up to $25,000 combined.4State of Delaware Division of Revenue. PIT-RES Instructions
Military Income Delaware Does Not Tax at All
Some retirement-related income never reaches your Delaware return because it is exempt at the federal level, and Delaware starts its calculation from federal adjusted gross income.
VA disability compensation is excluded from gross income under federal law and is not reported as taxable income on your federal return.5Office of the Law Revision Counsel. 26 USC 104 – Compensation for Injuries or Sickness Combat-Related Special Compensation is also tax-free.6Veterans Affairs. Combat-Related Special Compensation (CRSC) If you receive Concurrent Retirement and Disability Pay, the disability portion is federally exempt, while the remaining retired pay is taxable and qualifies for the $12,500 exclusion.
Delaware also does not tax Social Security or Railroad Retirement benefits, so they should not appear in your Delaware taxable income.3Delaware Division of Revenue. Personal Income Tax FAQs For a retiree drawing both a military pension and Social Security, that leaves the full $12,500 exclusion available for the military pay.
Survivor Benefit Plan annuity payments are a separate question. SBP is generally taxable at the federal level, and DFAS issues a separate 1099-R to the annuitant each year.7Defense Finance and Accounting Service. Getting Your 1099-R Whether SBP income qualifies as a “United States military pension” for the Delaware exclusion is not clear-cut, and a surviving spouse should confirm eligibility with the Delaware Division of Revenue or a tax professional before claiming it.
Claiming the Exclusion on Your Delaware Return
Delaware residents file Form PIT-RES. The pension exclusion goes on Line 6, where subtractions from federal adjusted gross income are entered, and the form has a checkbox to mark the pension as being from the United States military if you are under 60.4State of Delaware Division of Revenue. PIT-RES Instructions
You will need your 1099-R from DFAS, which reports the taxable amount of your retired pay. Military retirement pensions are reported with distribution Code 7 in Box 7.8Internal Revenue Service. Instructions for Forms 1099-R and 5498 DFAS makes 1099-R forms available through myPay and by paper request.7Defense Finance and Accounting Service. Getting Your 1099-R Delaware asks you to include a copy of the 1099-R with your return to support the exclusion.4State of Delaware Division of Revenue. PIT-RES Instructions
Proposals to Raise the Cap
The Delaware General Assembly has considered bills that would push the military pension exclusion above $12,500. Senate Bill 201 proposed phasing it to $25,000 by tax year 2026, with intermediate increases for 2024 and 2025.9Delaware General Assembly. Senate Bill 201 – Bill Detail Senate Bill 219 proposed a three-year phase-in reaching $25,000 by tax year 2029.10Delaware General Assembly. Senate Bill 219 – Bill Detail Both would apply regardless of age and both keep the “greater of” structure, so the military exclusion would remain an alternative to the general pension exclusion rather than an addition to it.
For tax year 2025, the exclusion is still $12,500.4State of Delaware Division of Revenue. PIT-RES Instructions If you are planning a move to Delaware or filing for a future year, check the current instructions on the Division of Revenue’s site before you file, since the figure could change if either bill is enacted.