Yes, Idaho does tax military retirement pay, but a state deduction can erase most or all of the tax for qualifying retirees. For the 2025 tax year, Idaho Code 63-3022A lets eligible military retirees subtract up to $48,216 (single) or $72,324 (married filing jointly) of retirement pay from state taxable income.1Idaho State Legislature. Idaho Code 63-3022A – Deduction of Certain Retirement Benefits A 2025 law broadened eligibility so most military retirees now qualify regardless of age, though Social Security benefits reduce the deduction dollar for dollar.
How the Tax Applies
Idaho taxes residents on all income, and military retirement pay is treated like any other pension.2Idaho State Tax Commission. Individual Income Tax Basics It flows through from your federal return into your Idaho adjusted gross income. The state’s flat income tax rate is 5.3% for 2025 and 2026.3Idaho State Tax Commission. Individual Income Tax Rate Schedule
Relief comes through a deduction, not a blanket exemption. The dollar cap and the Social Security offset explained below are the reasons that distinction matters.
Who Qualifies After the 2025 Law Change
Before 2025, military retirees had to meet the same rules as other state pensioners: at least 65, or at least 62 and classified as disabled. House Bill 40, signed into law in March 2025, created a separate and much broader pathway for military retirement pay.4Idaho State Legislature. House Bill 40 Under the updated statute, you qualify by meeting any one of three conditions:
- Disabled at any age. Idaho’s definition of disabled covers recognition by the Social Security Administration, a VA service-connected disability rating of 10% or more, a VA nonservice-connected disability pension, or a physician-certified permanent disability with no expectation of improvement.
- Age 62 or older by the end of the tax year, with no additional conditions.
- Under 62 and not disabled, but employed during the tax year and earning enough to be required to file a federal return.
The employment requirement is the one real gatekeeper. If you retired from the military in your forties and are not working at all, you will not qualify until you turn 62 or meet the disability criteria. Most retirees who move into civilian jobs clear the hurdle easily.1Idaho State Legislature. Idaho Code 63-3022A – Deduction of Certain Retirement Benefits
How Much You Can Deduct
The deduction is capped at the maximum Social Security benefit for the year and is adjusted annually. For the 2025 tax year (returns filed in 2026), the caps are $48,216 for single filers and $72,324 for married filing jointly. The 2026 figures had not been released at the time of writing.5Idaho State Tax Commission. Form 39R Resident Supplemental Schedule 2025
Two limits can shrink that number:
- Social Security and Railroad Retirement benefits reduce the cap dollar for dollar. A single filer receiving $20,000 in Social Security sees the deduction fall from $48,216 to $28,216. If your Social Security benefits exceed the cap, the retirement benefits deduction disappears entirely. This offset catches more retirees by surprise than any other part of the calculation.1Idaho State Legislature. Idaho Code 63-3022A – Deduction of Certain Retirement Benefits
- The deduction cannot exceed the military retirement pay actually included in your federal taxable income. If your pension is $30,000, that is the ceiling regardless of filing status.
VA Disability Compensation Versus Military Disability Retirement
VA disability compensation is excluded from gross income at the federal level, so it never enters your Idaho return and is not taxed by the state. No deduction is needed; the income is never included to begin with. This holds regardless of age, rating, or employment status.
Military disability retirement pay from the Department of Defense is different. It is reported on your federal return and does appear in Idaho income. That pay qualifies for the retirement benefits deduction under the “disabled at any age” pathway.
Survivor Benefit Plan Payments
Unremarried surviving spouses receiving payments under the Survivor Benefit Plan, Reserve Component Survivor Benefit Plan, or Retired Serviceman’s Family Protection Plan can also claim the deduction. Surviving spouses follow the older eligibility rules, not the expanded military pathway: at least 65, or at least 62 and classified as disabled.5Idaho State Tax Commission. Form 39R Resident Supplemental Schedule 2025 The same caps and Social Security offset apply. A surviving spouse who has remarried loses eligibility, and the deduction is unavailable to anyone filing as married filing separately.
How to Claim the Deduction
Claim the deduction on Idaho Form 39R (Resident Supplemental Schedule), filed with your Idaho Form 40 resident return. The calculation sits on Line 8.6Idaho State Tax Commission. Form 39R You will need:
- Your IRS Form 1099-R, showing the military retirement pay included in federal income (Box 1 or the taxable amount in Box 2a).7IRS.gov. Form 1099-R
- Your SSA-1099 if you receive Social Security, since Box 5 reduces the deduction.
The form walks through the math: start with the maximum deduction for your filing status, subtract Railroad Retirement and Social Security benefits, then compare the result to your actual qualified retirement income. The smaller figure is your deduction. Tax software generally handles this automatically once the 1099-R and SSA-1099 data are entered.
If You Do Not Live in Idaho All Year
Federal law bars states from taxing nonresidents’ retirement income. If you left Idaho after retiring, your military pension is not subject to Idaho income tax, no matter where the service was performed.8Idaho State Tax Commission. Income Tax for Seniors and Retirees If you moved into or out of Idaho during the year, you are a part-year resident and owe Idaho tax on pension payments received during your months of residency.