Is military retirement taxed in District of Columbia?

How it works in District of Columbia

Report the 1099-R and stop there. Military retired pay rides in your federal adjusted gross income onto line 4 of the 2025 Form D-40, and nothing on the D-40 or Schedule I takes it back out. On an assumed $36,000 pension, a filer whose taxable income sits in DC's 8.5% bracket ($60,000 to $250,000) pays about $3,060 a year on it.

It was not always all of it. D.C. Code § 47-1803.02(a)(2)(N)(i) excluded up to $3,000 of pension, military retired pay or annuity income from DC or the federal government for a person 62 or older by year end. The code now limits that sub-subparagraph to taxable years beginning before January 1, 2015, so tax year 2014 was the last one, well outside any refund window today.

DC still subtracts other retirement-age income. Line 10 takes out the taxable part of Social Security and tier 1 railroad retirement, line 12 takes out DC and federal government survivor benefits for an annuitant's survivor who is 62 or older, and Schedule I, Calculation B, line 7a excludes up to $10,000 for a resident whom the Social Security Administration has found totally and permanently disabled and who receives SSI, Social Security Disability, railroad retirement disability, or federal or DC government disability benefits, with household adjusted gross income under $100,000.

Leaving DC ends the tax only when domicile actually changes. The 2025 instructions say that takes physical presence in the new jurisdiction, intent to abandon DC, and intent to remain in the new place indefinitely. In the move year you file one D-40 as a part-year resident: fill in the line 2 oval with the from and to dates, enter on line 8 the income received while domiciled outside DC, and prorate the standard deduction with Calculation C by days domiciled in DC.

Keeping a DC home can keep you a full-year resident. The instructions treat anyone who maintains a place of abode in DC for an aggregate of 183 days or more in the year as a statutory resident who reports the whole year's income, and they count vacations, hospital stays and business trips as days of DC residency. Once you have moved, change or stop DC withholding in myPay or on DD Form 2866; DFAS withholds for only one state at a time.

What trips District of Columbia retirees up

• DC decoupled from the federal standard deduction for 2025 and now requires a D-40 from a single filer with gross income of at least $15,000, or $30,000 married filing jointly, even when no federal return is due. Retired pay of $15,000 or more is enough on its own to require a single filer's return.
• The survivor subtraction turns on age at year end. A survivor who is 62 by December 31 subtracts the whole year's survivor benefits on line 12; one who is 61 at year end subtracts none. Because DFAS says it cannot withhold state income tax for annuitants, a DC survivor under 62 who owes tax on the annuity has to cover it another way, and the 2026 D-40ES booklet requires estimated payments from anyone who must file and expects to owe $100 or more.
• The 2026 D-40ES booklet tells filers to use the 2025 tax rate table, which keeps 8.5% on taxable income from $60,000 to $250,000 as the planning rate for 2026.
• The old exclusion was never military-only. It covered pension, military retired pay or annuity income from DC or the federal government alike, so its end removed the break for federal civilian and DC government annuities too; the 2025 D-40 and Schedule I carry no pension line for any of them.