Arizona retired pay
Is military retirement taxed in Arizona?
Not taxed
100% Exempt on Line 29b Since 2021.
No. For tax years beginning after December 31, 2020, A.R.S. § 43-1022(26)(c) subtracts the full amount of retired or retainer pay of the uniformed services, and the 2025 Form 140 instructions let a surviving spouse exclude 100% as well. You take it on Form 140, line 29b. For 2019 and 2020 the subtraction was capped at $3,500.
- The law
- A.R.S. § 43-1022(26)(c)
- Current rule since
- tax year 2021 (the full amount); not more than $3,500 for 2019 and 2020, and not more than $2,500 through 2018
- Where you claim it
- Form 140, line 29b (Exclusion for Retired or Retainer Pay of the Uniformed Services of the United States)
Read on Arizona’s own sources October 9, 2026
What Arizona’s rule is worth on your retired pay
Enter your annual taxable retired pay (box 2a of your DFAS or Coast Guard 1099-R). The rate starts at Arizona’s flat 2.5% rate for tax year 2025; change it to your own bracket if you know it.
One rate applied to the whole amount, not Arizona’s full return: brackets, other income, deductions and credits change the real figure. Use it to compare, then check the state’s own form instructions.
How it works in Arizona
Enter the taxable amount from your DFAS 1099-R on line 29b of the 2025 Form 140. On a joint return, each spouse who draws uniformed services retired pay subtracts 100% of his or her own. Leave line 29a alone: it is the separate subtraction of up to $2,500 for other federal, Arizona state and local government pensions, and the instructions say to enter no amount there for retired or retainer pay of the uniformed services.
File the long form. Form 140A has no line for this subtraction: its 2025 instructions run from federal adjusted gross income on line 12 straight to exemptions, and they limit that form to filers making no adjustments to income. The Department's Military Tax Filing page also says a full-year resident subtracting active-duty pay must use Form 140, not 140A or 140EZ.
You may not need to file at all. The Form 140 instructions tell you to figure gross income as you would for federal purposes and then drop income Arizona does not tax, including retired or retainer pay of the uniformed services. A retiree whose only other income is Social Security can fall under the filing threshold. The exception is withholding: if Arizona tax was withheld from the check, you must file to get it back.
Arizona tax paid on retired pay for 2021 or a later year comes back through Form 140X only inside the four-year window. A 2021 return filed on time in April 2022 has aged out of that window; a 2022 return filed by its April 2023 due date can still be amended until April 2027.
At Arizona's flat 2.5% rate, the subtraction on an assumed $36,000 pension is worth $900 a year. A retired couple with $36,000 each saves $1,800.
Survivor Benefit Plan annuities
Exempt. The 2025 Form 140 instructions say that if you are the surviving spouse of a deceased military veteran "and are receiving payments from the uniformed services of the United States, you may exclude 100% of the payments you received" on line 29b (read October 9, 2026).
Active-duty pay in Arizona
Not taxed since 2006. A.R.S. § 43-1022(11) subtracts compensation for active service in the armed forces, Reserves or National Guard, taken on Form 140, line 32; the Department says a full-year resident cannot take it on Form 140A or 140EZ.
Missed it in an earlier year?
Generally four years to amend a return to claim a refund, filed on Form 140X; the period of limitations usually runs four years from the date the return was due or filed (2025 Form 140 instructions, read October 9, 2026).
What trips Arizona retirees up
- Line 29a is the trap. Putting the DFAS pension there instead of on line 29b caps the subtraction at $2,500, and the rest of the check is taxed at 2.5%.
- Paragraph 26 covers retired pay of the "uniformed services," a broader term than the "armed forces" used for active-duty pay in paragraph 11 of the same section. The statute, the instructions and the Department's Military Tax Filing page do not define it or list the services it reaches (read October 9, 2026).
- Paragraph 26 sets no age, income or length-of-service condition. A medical retiree's taxable retired pay goes on line 29b on the same terms as a 20-year retiree's, and a retiree in his or her 40s subtracts all of it.
- The $3,500 limit for 2019 and 2020 was the law in those years, so tax paid on the rest of a pension then was owed and is not something an amended return can recover.
Federal side: DFAS reports retired pay on Form 1099-R, and the IRS taxes it as a pension. VA disability compensation is not taxable income under federal law (IRS Publication 525). The SCRA’s tax-home rule (50 U.S.C. § 4001) protects servicemembers on orders, not retirees, so where a retiree lives decides which state taxes the pension. Compare every state on the 51-state ledger. Arizona’s other servicemember protections are on the Arizona SCRA page.
Frequently asked questions
Does Arizona tax military retirement pay?
No, starting with tax year 2021. A.R.S. § 43-1022(26)(c) subtracts the full amount of benefits, annuities and pensions received as retired or retainer pay of the uniformed services of the United States. The Arizona Department of Revenue's Military Tax Filing page lists that pay among income Arizona does not tax, tax year 2021 and forward. You claim it on Form 140, line 29b, and each spouse on a joint return subtracts 100% of his or her own. The subtraction was capped at $3,500 for 2019 and 2020 and at $2,500 before that (all read October 9, 2026).
Is SBP taxed in Arizona?
No. The 2025 Arizona Form 140 instructions say that if you are the surviving spouse of a deceased military veteran and are receiving payments from the uniformed services of the United States, you may exclude 100% of the payments you received. The survivor claims it on line 29b, the same line the retiree used. The instructions repeat the point in the filing requirement section, so a surviving spouse also leaves these payments out when deciding whether gross income is high enough to require an Arizona return (read October 9, 2026).
Do I have to file an Arizona return if my only income is military retired pay?
Often not. The 2025 Form 140 instructions tell you to figure gross income the federal way and then exclude income Arizona does not tax, which includes retired or retainer pay of the uniformed services and Social Security benefits. If what is left is under the threshold for your filing status, such as $15,750 for a single filer, you are not required to file. The instructions add that even a filer who is not required to file must file to get a refund of any Arizona tax withheld (read October 9, 2026).
Sources, read October 9, 2026
- A.R.S. § 43-1022 Subtractions from Arizona gross income (Arizona State Legislature)
- Military Tax Filing (Arizona Department of Revenue)
- 2025 Arizona Form 140 Resident Personal Income Tax Return Instructions (Arizona Department of Revenue)
- 2025 Arizona Form 140A Instructions (Arizona Department of Revenue)
Heads up: SCRA Saver publishes general information, not legal or financial advice. Laws change and every situation differs. Confirm details with your installation legal assistance office (free for service members) or a licensed professional.