Hawaii Military Retired Pay and Military Pay Tax Exemption

Hawaii does not tax military retired pay. The mechanism is worth understanding because it is different from the targeted military carve-outs most states use. HRS 235-7(a)(3) excludes from gross income, adjusted gross income, and taxable income any compensation received in the form of a pension for past services. Hawaii does not tax employer-funded pension income generally, and military retired pay falls inside that general exclusion rather than needing a military-specific provision. There is no cap, no age threshold, and no length-of-service condition. Because the exclusion is about employer-funded pensions, the distinction Hawaii draws is between the employer-funded portion of a retirement plan and amounts a taxpayer contributed themselves. Military retired pay is entirely employer-funded, so the whole of it is excluded. A veteran with a civilian pension or an individual retirement account should not assume the same treatment applies to those. Survivor Benefit Plan annuities and Dependency and Indemnity Compensation are also not taxed by Hawaii. VA disability compensation and VA pension are outside federal adjusted gross income and therefore outside Hawaii's base. For a resident still serving, HRS 235-7(a) excludes income received by a resident taxpayer who is on active duty outside the State pursuant to military orders. A Hawaii resident stationed on the mainland or overseas is therefore not taxed by Hawaii on that pay, which matters given how many Hawaii residents serve away from the islands. A member of a reserve component or the Hawaii National Guard may exclude compensation for duty up to a calculated ceiling, set by reference to pay for 48 drills and 15 days of annual duty at a specified grade and years of service. The ceiling moves with the military pay tables rather than being a fixed figure in the statute, so check the Department of Taxation's figure for the year rather than relying on an amount quoted in a guide. Under the federal Military Spouses Residency Relief Act, a nonresident spouse of a nonresident service member stationed in Hawaii may be exempt from Hawaii income tax on wages earned here.