Rhode Island Military Service Pension Income Exemption

Rhode Island General Laws 44-30-12(c)(11) is the modification for military service pensions. For tax years beginning on January 1, 2023, a taxpayer may subtract from federal adjusted gross income the taxpayer's military service pension benefits included in federal adjusted gross income. What matters about that sentence is everything it does not contain. There is no income limit, no age requirement, no dollar ceiling, and no phase-out. Every other retirement modification in the section is conditioned: the general pension and annuity modification at (c)(9) requires the taxpayer to have reached the age used for calculating full Social Security retirement benefits and to be under an adjusted gross income cap, and it is limited to $50,000 for tax years beginning on or after January 1, 2025. The military modification is limited by none of that. A forty-two year old Rhode Island retiree with a large civilian salary subtracts the whole military pension. The benefit arrived with P.L. 2022, ch. 231, art. 6, § 9, effective June 27, 2022, applying to tax years beginning January 1, 2023. A veteran reading guidance written before mid-2022 will find Rhode Island described as taxing military retirement in full, which it did. Two things in the provision need care. The first is the definition. Subsection (c)(11)(ii) says that "military service" has the same meaning as in 20 C.F.R. § 212.2, which is a Railroad Retirement Board regulation. Rhode Island borrowed its definition of military service from federal railroad retirement law rather than from Title 38. It is an odd place to look, and if a question arises about whether a particular period of service counts, that is the regulation to read rather than VA's definitions. The second is the interaction cap, and it is the clause to raise with a preparer. Subsection (c)(11)(iii) says that at no time shall the modification allowed under this subsection "alone or in conjunction with subsection (c)(9)" exceed the amount of the military service pension received in the tax year. On its face that caps the combined total of the military modification and the general retirement modification at the size of the military pension, which would limit what a military retiree can shelter of a separate civilian pension. The entry records the text rather than resolving it, because the reading changes the return for a retiree with two pensions. Survivor annuity income is the open question. The provision speaks of the taxpayer's military service pension benefits, and federal summaries describe Survivor Benefit Plan annuities as exempt in Rhode Island. The statute does not say so in terms the way some states do. A surviving spouse receiving an SBP annuity should ask the Division of Taxation how it is treating the annuity for the year in question rather than rely on a summary. Rhode Island also does not tax the active duty pay of a nonresident service member stationed in the state, and VA disability compensation never enters the calculation because Rhode Island starts from federal adjusted gross income and compensation is not in it.