Idaho Military Retirement Income Deduction

Idaho does not exempt military retired pay outright. It allows a deduction under Idaho Code section 63-3022A, capped at an amount the State Tax Commission recalculates each year by reference to the maximum Social Security benefit. The eligibility test for a retired service member is more generous than the one Idaho applies to other retirees, and reading the general rule instead of the military one is the common mistake. A retired service member qualifies if they are classified as disabled, or are age 62 or older, or are under 62 but were employed during the year and earned enough to have to file a federal return. For most other pension income Idaho requires age 65, or 62 with a disability. Because the maximum is recalculated annually and differs between a single filer and a married couple filing jointly, this entry does not print a figure. Take it from the Form 39R instructions for the year you are filing. A number quoted in a benefits guide will be a year or more out of date. The cap is also reduced by Social Security. Under section 63-3022A(3), if the taxpayer or the taxpayer's spouse receives Social Security or Railroad Retirement benefits in the year, the maximum is reduced by the amount of those benefits, and the deduction can never exceed the retired pay actually included in income. A retiree whose household already draws a large Social Security benefit may be left with a small deduction or none; a guide that quotes only the maximum overstates it. A veteran younger than 62 and not disabled generally gets nothing here, which is the group most likely to be surprised. Idaho's deduction is aimed at older retirees rather than at everyone drawing retired pay. An unremarried surviving spouse receiving the service member's pension may qualify, on the same age or disability tests. Two separate provisions help those still serving. Military pay earned by an Idaho resident stationed outside Idaho for 120 or more continuous days is excluded from Idaho taxable income. And a nonresident military spouse may claim a complete exemption from Idaho income tax on Idaho-earned income by filing the Employee's Idaho Military Spouse Withholding Exemption Certificate, which has to be filed annually rather than once. VA disability compensation and Dependency and Indemnity Compensation are outside federal adjusted gross income and therefore outside Idaho's base. Combat zone pay follows the federal exclusion.