Military disability/Retirement pay and tax...?

Question

I was injured out of the state on active duty. I was found unfit for duty and placed on TDRL, now when i got my monthly check they did not take out state tax. Will I have to pay state tax on that money? (it was non combat related)

Answer 1

Assuming that this is paid by the military and not the VA it is fully taxable and the Federal level. Since you are on the TDRL list it would be paid by the military and therefore is taxable.

Most states with an income tax also tax military retirements but there are exceptions to that. Some exclude pensions including military retirement and some offer a partial exclusion based upon gross income. You'll have to ask your state's tax authorities if it's taxable in your state.

The military does NOT automatically withhold state income taxes from retired pay. You have to tell them what state and what percentage to withhold.

If you're on the TDRL list, sooner or later that will have to be resolved. They will either return you to active duty or permanently retire you. If you are retired you should apply for VA benefits immediately. The old "double dip" ban is falling by the wayside bit by bit so you may not have to deal with the offset that most disabled retirees had to deal with. Even if you do have to deal with that for a while, VA disability pensions are NOT taxable at ANY level so it's still worth pursuing even if there is an offset.

Answer 2

This depends on the State law where you live.