NYS Military Tax Exemptions: Retirement Pay, VA, and Property

New York’s military tax exemptions fall into two buckets: income tax and property tax. On the income side, military retirement pay is fully exempt from state, New York City, and Yonkers income taxes, VA disability compensation is not taxed, and active-duty pay is often shielded through residency rules and federal law. On the property side, the state authorizes three separate veterans’ exemptions, but most of them only take effect if your local government has adopted them.

Military Retirement Pay Is Fully Exempt

If you receive a military pension, New York State does not tax it. The exemption also covers New York City and Yonkers income tax, and it applies whether you receive the payments as the retired service member or as a beneficiary.¹ The exclusion sits in N.Y. Tax Law § 612(c)(3)(ii), which subtracts pensions paid to officers and employees of the United States from state adjusted gross income.²

There is a second, separate benefit worth knowing about. New York allows a $20,000 exclusion under § 612(c)(3-a) for other pension and annuity income received after age 59½. Because your military pension is already fully exempt under a different provision, you can apply this $20,000 exclusion to a private-sector pension or annuity on top of the military exclusion.²

Active-Duty Pay and Residency

Active-duty pay is treated differently depending on whether New York considers you a resident.

If you are a New York resident on active duty, your military pay is generally subject to state income tax in the same way it’s subject to federal tax. Combat zone pay is the main carve-out: N.Y. Tax Law § 612(c)(8-c) excludes it to the extent it’s included in federal gross income.²

If you are a nonresident of New York, your military pay is not subject to state income tax at all.¹ Service members stationed outside New York often qualify as nonresidents by meeting all three parts of the state’s test: no permanent place of abode in New York during the tax year, a permanent place of abode maintained outside the state for the entire year, and 30 or fewer days spent in New York during the year.³ Temporary military barracks or shipboard quarters generally do not count as a permanent place of abode.

The Servicemembers Civil Relief Act reinforces this. Under 50 U.S.C. § 4001(b), a state cannot treat military pay as income from sources within the state solely because the service member is present there on orders.⁴ New York follows the federal rule.¹

Military spouses have their own election. For tax years 2023 and after, the service member and the spouse may each choose, for state tax purposes, any of the following: the service member’s residence or domicile, the spouse’s own residence or domicile, or the service member’s permanent duty station.¹ A spouse who is in New York only because of orders can elect to remain a tax resident of another state and keep their earnings out of New York income tax.

VA Disability Compensation

Disability compensation from the Department of Veterans Affairs is excluded from federal gross income under 26 U.S.C. § 104(a)(4).⁵ Because it never enters your federal adjusted gross income, it never reaches your New York return. You do not need to report it or claim a separate state exclusion.

Property Tax Exemptions: Start With Your Local Assessor

New York authorizes three property tax exemptions for veterans: the Alternative Veterans Exemption under Real Property Tax Law § 458-a, the Cold War Veterans Exemption under § 458-b, and the Eligible Funds Exemption under § 458. Each reduces the assessed value of your primary residence.

Here is the catch that trips up a lot of veterans. The Alternative and Cold War exemptions are local-option programs. Your county, city, town, village, or school district has to pass a local law adopting the exemption, and it can set its own dollar cap within the range the state allows.⁶ Call your local assessor’s office before you gather paperwork, and ask two things: has the exemption been adopted here, and what caps apply?

Alternative Veterans Exemption

This is the most widely used veterans’ property tax benefit. You qualify if you served during a designated period of war or received an expeditionary medal and were discharged under honorable conditions. Veterans with a qualifying condition under the Veterans’ Services Law and discharged LGBT veterans also qualify, provided the discharge was not bad conduct or dishonorable.⁶

The exemption has three tiers that stack:

Wartime service reduces assessed value by 15%, subject to a base state cap of $12,000, adjusted by the local equalization rate.⁷
Combat zone service adds another 10% reduction, capped at $8,000 (equalization-adjusted).⁷
A service-connected disability adds an amount equal to assessed value multiplied by half of your VA disability rating, capped at $40,000 (equalization-adjusted). A 60% disability rating, for instance, produces an additional 30% reduction of assessed value.⁶

Those figures are the baseline caps. Local governments can adopt higher caps, and the statute authorizes ceilings well above the defaults in ordinary and high-appreciation municipalities.⁶ Your actual cap depends on what your local government has done.

Cold War Veterans Exemption

This one covers active-duty service between September 2, 1945, and December 26, 1991, with an honorable-conditions discharge.⁸ Like the Alternative exemption, it requires local adoption.

Municipalities choose one of two tiers when they adopt it:

Basic tier: 10% of assessed value, capped at $8,000 (equalization-adjusted).
Enhanced tier: 15% of assessed value, capped at $12,000 (equalization-adjusted).⁸

Cold War veterans with a service-connected disability receive an added exemption equal to assessed value times 50% of the disability rating, capped at $40,000 (equalization-adjusted).⁸ Local governments can raise or lower these caps.

Eligible Funds Exemption

The older § 458 exemption applies when a veteran buys a property using specific types of military money: pension proceeds, bonus payments, insurance dividends, refunds on military insurance, or prisoner-of-war compensation from the federal government. It covers the portion of the property’s value purchased with those eligible funds.⁹ The property can be owned by the veteran, their spouse, an unremarried surviving spouse, a dependent parent, or children under 21.

Surviving Spouses, Dependents, and Gold Star Parents

An unremarried surviving spouse of a veteran is a “qualified owner” under § 458-a and can keep receiving the exemption. Remarrying ends eligibility. A veteran who is also the unremarried surviving spouse of another veteran can receive exemptions based on both records of service.⁶

If a veteran dies with no unremarried surviving spouse, the exemption can pass to a dependent parent or dependent children under 21, so long as the property was the veteran’s primary residence and becomes the primary residence of the family member who inherits it.⁶ Gold Star parents, meaning parents of a child who died in the line of duty during wartime, may also qualify for the Alternative Veterans Exemption where the local taxing jurisdiction has opted to extend coverage.¹⁰

How to Apply

The deadline matters more than anything else on the application side. In most New York communities, the taxable status date is March 1, and your application plus supporting documents must reach the assessor by that date. Miss it and you wait a full year for the next assessment roll.¹¹ Some communities use a different date; confirm with your assessor.¹²

Gather these items:

Your DD-214 or an equivalent discharge document showing service dates and character of discharge. The Department of Taxation and Finance publishes a list of other acceptable military records.¹³
The application form: RP-458-a for the Alternative Veterans Exemption or RP-458-b for the Cold War Veterans Exemption.¹⁴
VA documentation of your service-connected disability rating, if you are claiming the disability tier.
If you received a less-than-honorable discharge but have a qualifying condition under the Restoration of Honor Act, a letter from the New York State Department of Veterans’ Services confirming you meet the character-of-discharge criteria.¹³

File everything with the assessor for the municipality where the property is located. The property must be your primary residence.¹⁰ Once approved, the exemption shows up on your tax bill as a reduction in assessed value. You generally don’t need to reapply each year unless something changes, such as selling the home or a change in your disability rating.

Moving Within the County

If you sell and buy another home in the same county, your municipality may allow the assessor to transfer and prorate the exemption for the rest of the fiscal year. The transfer itself is a local option, so it isn’t available everywhere. Either way, you must reapply by the next taxable status date to keep the exemption going forward.⁶

Combining a Veterans’ Exemption With STAR

A veterans’ property tax exemption and the STAR exemption (New York’s school tax relief program) can both apply to the same property, because they reduce different portions of the tax bill. You generally cannot stack the Alternative Veterans Exemption and the Cold War Veterans Exemption on the same property; each applies to the qualified owner’s primary residence, and you claim the one that gives you the greater benefit.

1
New York State Department of Taxation and Finance. Information for Military Personnel and Veterans
2
New York State Senate. New York Code TAX 612 – New York Adjusted Gross Income of a Resident Individual
3
New York State Department of Taxation and Finance. Income Tax Definitions
4
Office of the Law Revision Counsel. 50 USC 4001 – Residence for Tax Purposes
5
Office of the Law Revision Counsel. 26 USC 104 – Compensation for Injuries or Sickness
6
New York State Senate. New York Real Property Tax Law 458-A – Veterans Alternative Exemption
7
Department of Taxation and Finance. Assessor Manuals, Exemption Administration: RPTL Section 458-a
8
New York State Senate. New York Real Property Tax Law 458-B – Exemption for Cold War Veterans
9
Department of Taxation and Finance. RPTL Section 458: Veterans (Based on Eligible Funds or Disability)
10
New York State Department of Taxation and Finance. Alternative Veterans Exemption: Eligibility Requirements
11
New York State Senate. New York Real Property Tax Law 302 – Taxable Status Date
12
New York State Department of Taxation and Finance. Property Tax Calendar
13
New York State Department of Taxation and Finance. Alternative Veterans Exemption
14
New York State Department of Taxation and Finance. Instructions for Form RP-458-a Application for Alternative Veterans Exemption from Real Property Taxation