Is Retirement Income Taxed in Alabama?
From Tax Guide.
Tax Guide · Arab, Alabama
Military and Veteran Taxes in Alabama
How military pay, military retirement pay and VA benefits are taxed for Alabama service members and veterans, and what to bring to your preparer.
The short answer
Is military pay taxed in Alabama?
Military retirement pay is not taxed by Alabama, but other military income and VA benefits follow their own rules, so it helps to look at each source separately.
Military and veteran income comes in several forms, and each is treated differently. Military retirement pay is not taxed by the state of Alabama, and that surprises many retirees who assume it is. The federal government may still tax retirement pay, so the two returns can look very different.
For active duty pay, Alabama has its own rules that depend on residency and other facts, and we check how they apply to you rather than assume. Some pay earned in a combat zone may be excluded from federal income, subject to rules the IRS sets. Veterans' disability benefits from the VA are generally not taxable federally.
Rules change and the details depend on a person's situation, so treat this article as general information. It is not advice about your return.
Income types
How are different types of military and veteran income taxed?
Each kind of military income has its own tax treatment, so the quickest way to sort it out is to list your income by source.
The table gives a general picture. It is a starting point, and your own facts may change the answer.
| Type of income | Federal income tax (general) | Alabama income tax (general) |
|---|---|---|
| Military retirement pay | Generally taxable | Not taxed |
| Active duty basic pay | Generally taxable | Alabama has its own rules; we check them |
| Combat zone pay | Certain pay may be excluded | Alabama has its own rules; we check them |
| VA disability benefits | Generally not taxable | Alabama has its own rules; we check them |
| Civilian job after service | Taxable | Taxable, as most wages are |
General information only. Check the current rules and your own facts before relying on any row.
Veterans
Are VA benefits and veteran pay taxable?
VA disability compensation is generally not taxable on your federal return, but other income veterans receive can be.
Money you receive from the VA for a service-connected disability is generally not counted as income for federal tax purposes. Pension and other benefits can be treated differently, and some VA payments are not the same kind of payment even though they come from the same agency. When a form arrives with a number on it, ask what type of payment it is before you decide.
A veteran who works, runs a business, or draws a civilian retirement plan still reports that income like anyone else. A spouse's income counts on a joint return too. If you are also receiving Social Security, see our guide on whether Social Security is taxable. If you are drawing other retirement income, retirement income and Alabama taxes explains how Alabama treats it.
When in doubt, the paper trail helps: keep award letters and statements from the VA with your other tax records.
Service members
What tax rules are different for active duty service members?
Service members often face situations that civilians do not, such as moves between duty stations, combat zone service and a legal home state that differs from where they are stationed.
Where you live and where you are stationed can be different for tax purposes. Federal law gives service members some protection from being taxed as residents of a state only because the military sent them there, and it can extend to a spouse in some cases. Which state you owe, and whether Alabama or another state applies, depends on your legal home and your facts.
Time-sensitive matters can also be affected by service. Filing and payment deadlines can be extended for those serving in combat zones or in certain support roles, and the details are set by the IRS. Certain moving costs for active duty members who move because of a military order have been treated differently than for civilians, and rules change, so we confirm the current ones.
Do not rely on what a coworker did last year. Their pay, location and family situation may differ from yours.
- Legal home state and where you are stationed.
- Combat zone service during the year.
- A spouse who works in another state.
- Moves ordered by the military.
- Reserve or National Guard drill pay.
Getting ready
What should military families bring to a tax preparer?
Bring your pay and benefit statements, your spouse's income documents, and anything that shows where you lived and served during the year.
Our general list of tax documents to bring to your preparer applies here too, with a few additions for military families. Do not send Social Security numbers or documents through the website; bring them to the office or call us.
- Your year-end pay statement (Leave and Earnings Statement) and Form W-2.
- Retirement pay statement and Form 1099-R, if you are retired.
- VA award letters and any Form 1099 you received.
- Orders, or dates and locations of any moves and combat zone service.
- Your spouse's W-2s and records of where your spouse worked.
- Records of health insurance, childcare and education costs.
How we can help
How Melton Tax Services can help
Our office prepares federal and Alabama income tax returns for service members, retirees and veterans and their families.
We can go through your pay and benefit statements with you, explain how each source of income is treated, and prepare your returns. See our income tax preparation service, or contact our office.
You can also call 256-586-4635. We serve Arab and the surrounding area.
Answers
Questions about military and veteran taxes
Does Alabama tax military retirement pay?
No. Alabama does not tax military retirement pay. Your federal return may still include it, so the two returns can differ.
Is VA disability compensation taxable?
VA disability compensation is generally not taxable on the federal return. Other VA payments can be different, so we look at what type of payment you received.
Do I have to file in more than one state?
It depends on your legal home state, where you were stationed and where a spouse worked. Federal law gives service members some protection, but the details vary, so we review your situation.
Is combat zone pay taxed?
Some pay earned in a combat zone may be excluded from federal income, subject to rules the IRS sets. Check with us so it is reported correctly.
Does my spouse have to file with me?
Not always. Married couples can file jointly or separately, and the choice depends on income and other facts. Our guide on <a href="/guide/filing-status-explained.php">filing status</a> explains the options.
I am a veteran with a civilian job. Is that income taxed the usual way?
Yes. Wages and business income from civilian work are generally taxed federally and in Alabama like anyone else's, even if you also receive military or VA benefits.
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Income Tax Services
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Melton Tax Services
Questions about your taxes or your business?
Our team in Arab is just a phone call away, and we are glad to talk it through with you.