Maine Does Not Tax Military Retired Pay

Maine's treatment of military retired pay is more generous than its treatment of any other pension, and the two are set out in the same paragraph, which is why they get confused. Title 36, section 5122(2)(M-2) gives a primary recipient of retirement plan benefits a subtraction made up of two parts. Division (1)(a) covers everything except military retirement plan benefits and is capped at the pension deduction amount. Division (1)(b) is an amount equal to the aggregate of retirement benefits under military retirement plans included in federal adjusted gross income, with no cap written on it at all. So military retired pay comes out in full. There is no dollar ceiling, no age condition, and no requirement to have retired at twenty years. The cap that people quote belongs to the other half. The pension deduction amount for non-military retirement income was $10,000 for tax years before 2022, $25,000 in 2022, $30,000 in 2023, and from January 1, 2024 is the maximum annual benefit an individual eligible to retire at Social Security retirement age could receive under the Social Security Act as of June 28, 2023. That figure moves, and it does not apply to the military part. There is a phase-out, and knowing what it does not reach is the point. Paragraph M-3, for tax years beginning on or after January 1, 2025, reduces the amount in paragraph M-2, subparagraph (1), division (a). Division (a) is the non-military part. The military deduction in division (b) is not phased out. The phase-out applicable amounts are $125,000 for a single individual, $187,500 for a head of household, $250,000 for a married joint return or a surviving spouse, and half of $250,000 for a married individual filing separately, over a denominator of $100,000, or $50,000 for married filing separately. A retired service member with a high income keeps the military deduction whole while losing some of the deduction on a civilian pension. The definition of military retirement plan widened. Through tax year 2025 it meant retirement plan benefits received as a result of service in the active or reserve components of the Army, Navy, Air Force, Marines, Coast Guard or Space Force. For tax years beginning on or after January 1, 2026 it means service in the active or reserve components of the uniformed services of the United States as defined in 37 U.S.C. 101(3), which adds the commissioned corps of the National Oceanic and Atmospheric Administration and the commissioned corps of the Public Health Service. A retired NOAA Corps or Public Health Service officer in Maine who checked this question before 2026 got a different answer than they will get now. Two neighbouring provisions round out the picture. Paragraph LL subtracts military compensation earned during the taxable year for service performed outside Maine pursuant to written military orders, which is the provision a Maine-domiciled service member stationed elsewhere uses. Paragraph HH subtracts survivor benefit plan and reserve component survivor benefit plan annuity payments made to the survivor of a member who died as the result of service, reduced by any amount already claimed under paragraphs M, M-1 or M-2. Read paragraph HH carefully before repeating the common claim that Maine does not tax survivor annuities at all. Paragraph HH is written for the survivor of a member who died as a result of service. A surviving spouse receiving an annuity derived from an ordinary military retirement takes their deduction as a primary recipient under M-2 instead, because M-2 defines primary recipient to include the surviving spouse of the individual on whose earnings the benefits are based. Both routes lead to a deduction; they are different lines on the return, and a preparer who picks the wrong one will be asked about it. Maine also does not tax Social Security benefits, which is why the M-2 reduction for Social Security in division (1)(a) exists at all, and which the statute expressly says does not apply to benefits paid under a military retirement plan.