Up to $12,500 of military retired pay is excluded from Delaware income tax at any age through 2026, rising to $15,000 in 2027, $20,000 in 2028 and $25,000 from 2029. Each spouse on a joint return gets their own limit. From 2027 a retiree aged 60 or older must also meet a domicile test that a younger retiree does not.
Also called: 30 Del. C. 1106(b)(3), pension exclusion, military retired pay, Senate Bill 219, 85 Del. Laws c. 426, $12,500, $15,000, $20,000, $25,000, eligible retirement income, Public Health Service pension, NOAA pension.
Delaware taxes military retired pay, and excludes part of it. The part is growing, and the rules for younger and older retirees are no longer the same.
The schedule, from Title 30, section 1106, subsection (b), paragraph (3). For taxable years beginning January 1, 2022 through the end of 2026, a person under 60 may subtract the greater of $2,000 of any pension or $12,500 of a United States military pension, and a person 60 or older may subtract up to $12,500 of pensions and eligible retirement income combined. For 2027 a person of any age may subtract the greater of the ordinary pension exclusion or $15,000 of military pension. For 2028 the military figure is $20,000. For taxable years beginning on or after January 1, 2029 it is $25,000.
Where this came from. Senate Bill 219 with Senate Amendment 1, signed August 17, 2026, and printed in the Code as 85 Delaware Laws chapter 426. Its synopsis says the Act "phases in, over 3 years, an increased exemption for military pensions from state income taxation, regardless of age". Before it, a retiree aged 60 or older got no military-specific figure at all: their military pension shared one $12,500 exclusion with every other pension, 401(k) distribution, dividend, capital gain and interest payment. From 2027 the older retiree takes the greater of that combined figure or the military figure, which is a real change for a retiree with other retirement income.
Each spouse has their own limit. Paragraph (b)(3)f.3.: the dollar limits "apply individually to each spouse who is receiving a United States military pension on a joint return", with the total capped at twice the limit. Two military retirees filing jointly can exclude $50,000 from 2029.
What counts. Paragraph (b)(3)f.2. defines a United States military pension as one received "as a result of an individual's service in the Army, Navy, Air Force, Marine Corps, Space Force, Coast Guard, the commissioned corps of the National Oceanic and Atmospheric Administration, the commissioned corps of the Public Health Service, or the National Guard". Guard and reserve retired pay counts. Survivor Benefit Plan annuities are not written into that definition; a surviving spouse falls back on the ordinary pension exclusion of $2,000 under 60 or $12,500 at 60 and over.
The new domicile rule reaches only the older retiree. Paragraph (b)(3)f.4., added by Senate Amendment 1, says a person "who is age 60 or older is eligible for the subtraction under this paragraph (b)(3) only if" they have been legally domiciled in Delaware for at least three years, where they became domiciled before January 1, 2027, or at least five years, where they became domiciled on or after that date. Nothing in the paragraph imposes a domicile period on a retiree under 60. So a 45-year-old who retires from the Air Force at Dover and stays takes the exclusion in the first year, and a 62-year-old who moves to Delaware in 2027 waits five years for any pension exclusion at all, military or otherwise. That is a large difference for a retiree choosing where to settle, and no summary we have seen mentions it.
What is not taxed at all. VA disability compensation, dependency and indemnity compensation, and military disability retired pay paid for combat-related injury or under the federal rules that exclude it from federal gross income are never in federal adjusted gross income, so Delaware never reaches them. Active duty pay is taxable to a Delaware resident.
Delaware has no sales tax, so there is no veteran sales tax exemption to look for.
Thresholds
Thresholds for Delaware Military Pension Income Tax Exclusion
Gate
Rule
$12,500 through 2026, then $15,000, $20,000 and $25,000
30 Del. C. § 1106(b)(3)b. to e., as amended by 85 Del. Laws c. 426 (SB 219 with SA 1, signed August 17, 2026).
A retiree aged 60 or older must meet a three or five year domicile test
30 Del. C. § 1106(b)(3)f.4. Three years if domiciled before January 1, 2027 and five if on or after. The paragraph imposes nothing on a retiree under 60.
▲▼Expands and restrictsRaises the military pension exclusion to $25,000 at every age by 2029, but makes a retiree aged 60 or older first meet three or five years of Delaware domicile.
Amended 30 Del. C. § 1106(b)(3). For 2027 a taxpayer of any age may subtract the greater of the ordinary pension exclusion or $15,000 of United States military pension, for 2028 $20,000 and from 2029 $25,000. Before it a retiree aged 60 or older had no military-specific figure and shared one $12,500 exclusion with every other pension and retirement income. Senate Amendment 1 made the limits apply to each spouse separately on a joint return and added paragraph f.4., which lets a person aged 60 or older take any subtraction under paragraph (3) only after three years of Delaware domicile, or five if domiciled on or after January 1, 2027. The paragraph imposes nothing on a retiree under 60. Signed August 17, 2026, per the General Assembly’s bill record; the 2026 session laws are not yet published online, and the chapter number is the one the Code prints in the section history. Watching because the first increase applies to tax year 2027.
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Disclaimer
VetTOC is not affiliated with the U.S. Department of Veterans Affairs or the Department of Defense. Information is for reference only and is not an eligibility determination. Verify with VA, the relevant state or territory, or an accredited VSO.