Indiana retired pay

Is military retirement taxed in Indiana?

Not taxed

Off State and County Tax Since 2022.

No. Indiana has deducted the entire amount of military retirement income and survivor's benefits since tax year 2022, after a phase-in that began in 2019, with no age test. The deduction goes on Schedule 2, line 11 with code 632, and because it lowers Indiana adjusted gross income it also takes the pay out of county income tax.

The law: IC 6-3-2-4(a)(2)
Current rule since: tax year 2022 (100%), after a 2019 to 2021 phase-in above the first $6,250; Space Force, Public Health Service Commissioned Corps and NOAA Commissioned Officer Corps retirees included from January 1, 2025
Where you claim it: Schedule 2 (Form IT-40), line 11, Other Deductions, code 632 (Military Retirement Income and/or Survivor's Benefits Deduction); Schedule 2, line 12 carries to Form IT-40, line 4

Read on Indiana’s own sources October 10, 2026

What Indiana’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 Indiana’s flat 2.95% state rate for 2026 (county income tax is added on top) for tax year 2026; change it to your own bracket if you know it.

One rate applied to the whole amount, not Indiana’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 Indiana

Take the taxable retired pay from your federal return and enter it on Schedule 2, line 11, Other Deductions, with the deduction name and code 632. The 2025 IT-40 booklet says that for 2022 and later the deduction equals the entire amount of military retirement income and survivor's benefits, and that the retirement or survivor's benefit statement must be enclosed with the return.

Keep the pension off line 7. That line is the Military Service Deduction for active-duty pay, a full deduction since 2024, and the booklet warns that the two deductions are reported in different places. In a year with both, such as a mid-year retirement from active duty, the active-duty pay goes on line 7 and the retired pay under code 632, reported separately as Bulletin #27 requires; Guard or Reserve drill pay has its own code, 621.

Schedule 2, line 12 carries to Form IT-40, line 4, and the result reaches Indiana adjusted gross income on line 7. Schedule CT-40 starts from that same line 7, so code 632 takes the pension out of the county tax base as well as the 3% state tax on line 8.

On an assumed $36,000 pension, a Marion County resident avoids $1,080 of 2025 state tax at 3% and $727 of county tax at Marion's 2025 rate of 2.02%, about $1,807 a year. In Hamilton County, at 1.1%, the county share is $396. For 2026 the DOR lists the state rate at 2.95%, which puts the state share at $1,062.

Old returns with a partial figure are explained by the phase-in in Bulletin #6: $6,250 plus 25% of the rest for 2019, 50% for 2020, 75% for 2021, and the whole amount from 2022. The three-year amendment window means a return can be fixed only while it is open, which as of October 2026 generally leaves 2023 and later.

Survivor Benefit Plan annuities

Deductible. Information Bulletin #6 (June 2025) covers military retirement pay or survivor's benefits, and Bulletin #27 says the deduction is available to the member's surviving spouse. A former spouse who receives part of the retired pay under a divorce decree cannot deduct that portion.

Active-duty pay in Indiana

Not taxed from 2024. Bulletin #27 says Indiana resident regular members of an active component are exempt on their armed forces wages for 2024 and later (Schedule 2, line 7), and Guard and Reserve pay has been deductible in full since 2023 under code 621.

Missed it in an earlier year?

Amended returns can be filed up to three years after the original due date or the date the tax was paid, whichever is later (Indiana DOR, File an Amended Return). Use the IT-40 for that year with the Amended box checked.

What trips Indiana retirees up

NOAA, Public Health Service and Space Force retirees were added only from January 1, 2025, according to Bulletins #6 and #27 (both June 2025). The amended list in IC 6-3-2-4(a)(2) now names the Army, Navy, Air Force, Space Force, Coast Guard, Marine Corps, Merchant Marine, the Indiana Army and Air National Guard, the PHS Commissioned Corps and the NOAA Commissioned Officer Corps.
Divorce splits the deduction. Bulletin #27 says the portion of retired pay that a former spouse receives under a divorce decree or similar agreement is not deductible for that spouse, so a divorced spouse's share is taxed by Indiana even though the member's is not.
A later federal civil service career runs on a different rule. The civil service annuity adjustment in IC 6-3-2-3.7 starts at age 62 and is capped at $16,000 less Social Security and railroad retirement benefits, per Bulletin #6, while code 632 has no age floor and no cap.
Where you served does not matter. Bulletin #27 says the retiree need not have been an Indiana resident during active service, so a retiree who moves to Indiana after a career spent elsewhere deducts the pension from the first year as an Indiana resident.

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. Indiana’s other servicemember protections are on the Indiana SCRA page.

Frequently asked questions

Does Indiana tax military retirement?

No, not since tax year 2022. IC 6-3-2-4(a)(2) allows the lesser of the benefits in adjusted gross income or $6,250 plus a share of the excess, and that share rose from 25% for 2019 to 50% for 2020, 75% for 2021 and 100% for taxable years after 2021, so today the whole pension comes off. There is no age requirement. Claim it on Schedule 2, line 11 with code 632 and enclose your retirement statement, per the 2025 IT-40 booklet (read October 10, 2026).

Do I pay Indiana county tax on my military pension?

No, once you claim code 632. Schedule CT-40 starts from Form IT-40, line 7, Indiana adjusted gross income, which is figured after the Schedule 2 deductions, so the pension leaves the county tax base too. County rates differ: the 2025 Schedule CT-40 chart lists 2.02% for Marion County, 1.59% for Allen County and 1.1% for Hamilton County. On an assumed $36,000 pension, the county tax avoided is $727, $572 or $396 a year, on top of the state tax.

Is SBP taxed in Indiana?

No. Indiana's deduction covers military retirement pay or survivor's benefits received because of a member's active or reserve service, and Information Bulletin #27 (June 2025) says it is available to the member's surviving spouse. The 2025 booklet uses one code, 632, for retirement income and survivor's benefits, and asks you to enclose the survivor's benefit statement. One limit applies: a former spouse who receives part of the retired pay under a divorce decree cannot deduct that portion.

Is NOAA or Public Health Service retirement taxed in Indiana?

Not from tax year 2025. Information Bulletins #6 and #27, both dated June 2025, say 2025 legislation added the U.S. Space Force, the Public Health Service Commissioned Corps and the NOAA Commissioned Officer Corps to Indiana's military deductions as of January 1, 2025. Retired pay from those services goes on Schedule 2, line 11 with code 632 like any other military retirement. The same change opened the active-duty Military Service Deduction on line 7 to members of those corps.

Sources, read October 10, 2026

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