Pennsylvania retired pay

Is military retirement taxed in Pennsylvania?

Not taxed

Excluded, No Subtraction Needed.

No. Pennsylvania does not count retired or retainer pay of a uniformed service member, computed under Chapter 71 of Title 10, as taxable compensation, so you leave it off the PA-40 instead of subtracting it. There is no age test, income test or dollar cap. Your other taxable income pays the flat 3.07% rate for 2025.

The law: 61 Pa. Code § 101.6(c)(3), under the definition of compensation in § 301(d) of the Tax Reform Code of 1971
Current rule since: No start year in the department's guidance; 61 Pa. Code § 101.6, last amended effective January 12, 2002, carries the exclusion, and the 2025 PA-40 instructions repeat it
Where you claim it: Nothing to claim: leave military retired pay off PA-40, Line 1a (gross compensation) and every other income line. Paper filers still include a copy of every 1099-R; e-filers send one only if it shows PA tax withheld.

Read on Pennsylvania’s own sources October 9, 2026

What Pennsylvania’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 Pennsylvania’s flat 3.07% rate for tax year 2025; change it to your own bracket if you know it.

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

There is no subtraction line for military retirement on the PA-40, because the pay is never income there in the first place. Line 1a carries gross compensation, and 61 Pa. Code § 101.6(c)(3) says compensation does not include retired or retainer pay of a member or former member of a uniformed service computed under 10 U.S.C.A. § 1401. The 2025 instructions list military pension benefits among income not taxable for PA personal income tax purposes.

Handle the DFAS 1099-R by filing method. A paper PA-40 must include copies of all Forms 1099-R, whether or not the distribution is taxable in Pennsylvania. An e-filed return needs a copy only when the form shows PA tax withheld. If DFAS did withhold Pennsylvania tax (Box 14, with PA in Box 15), report that amount on Line 13 to get it back.

You may not need to file at all. The 2025 instructions require a PA-40 only when your total PA gross taxable income exceeds $33, or when you have a loss from a transaction. Neither military retired pay nor Social Security counts toward that $33, so a retiree living on those two checks often has no Pennsylvania return to file.

On an assumed $36,000 pension, the exclusion is worth $1,105 a year at the flat 3.07% rate for 2025. Wages from a civilian job after you retire are still compensation on Line 1a and pay the same 3.07%.

The exclusion also helps with Tax Forgiveness. When you compute eligibility income on Schedule SP, the 2025 instructions tell you to leave out military pension benefits, along with Social Security and civil service annuity payments. A large retired paycheck therefore does not count against the income limits for forgiveness of tax on your other income.

Survivor Benefit Plan annuities

The department's pages do not name the Survivor Benefit Plan (read October 9, 2026). The 2025 PA-40 instructions say payments to an estate or designated beneficiary upon an employee's death from an eligible employer-sponsored retirement plan are not PA-taxable on the beneficiary's PA-40, and they count survivor annuity benefits reported on a 1099-R with code 7 as eligibility income for Schedule SP.

Active-duty pay in Pennsylvania

Excluded when earned outside Pennsylvania. A resident's full-time active duty pay, or federal active duty for training, outside the state is not taxable; pay for active duty at a Pennsylvania base or earned while not on active duty status is reported on Line 1a. Public Health Service and NOAA compensation is taxable wherever earned.

Missed it in an earlier year?

The 2025 PA-40 instructions say an amended return requesting a refund must be filed within three years from the original due date or payment of tax. In the last nine months of that window, file a Petition for Refund (Form REV-65) instead to protect appeal rights.

What trips Pennsylvania retirees up

The exclusion is written around Chapter 71. The regulation cites 10 U.S.C.A. § 1401, and the instructions say Chapter 71 of Title 10. The instructions separately say commonly recognized pension or retirement benefits paid after you become eligible to retire, and retire, are not taxable, but neither text names NOAA Corps or Public Health Service retired pay, or Reserve and Guard retired pay that starts at age 60 (read October 9, 2026). A Coast Guard civilian's federal annuity is a separate case the instructions do cover: civil service annuities are on their list of income not taxable for PA purposes.
Survivors are treated differently on Schedule SP. A 1099-R reporting a survivor annuity with distribution code 7 goes into eligibility income on Schedule SP, Line 4, and so does a code 4 death distribution, even when the payment itself is not PA-taxable. The retiree's own pension stays out of that calculation.
Watch the last nine months of the refund window. The 2025 instructions say not to file an amended return asking for a refund in the nine months before the three-year limit runs out; file a Petition for Refund on Form REV-65 with the Board of Appeals instead, or a denied amendment can leave you with no appeal.

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

Frequently asked questions

Does Pennsylvania tax military retirement?

No. Pennsylvania's regulation, 61 Pa. Code § 101.6(c)(3), says compensation does not include retired or retainer pay of a member or former member of a uniformed service computed under 10 U.S.C.A. § 1401. The 2025 PA-40 instructions repeat the rule for pay computed under Chapter 71 of Title 10 and list military pension benefits as income not taxable for PA purposes. Because it is never income, there is no subtraction to claim: you leave it off Line 1a. The department's Gross Compensation guide says the same (read October 9, 2026).

Is SBP taxed in Pennsylvania?

The Department of Revenue does not address Survivor Benefit Plan annuities by name (read October 9, 2026). The 2025 PA-40 instructions say payments to an estate or designated beneficiary upon an employee's death from an eligible employer-sponsored retirement plan are not PA-taxable on the beneficiary's PA-40. Separately, they count survivor annuity benefits reported on a 1099-R with code 7 as eligibility income for Schedule SP Tax Forgiveness. A surviving spouse who wants certainty should ask the department in writing before filing.

Do I have to file a Pennsylvania return if I only get military retirement?

Usually not. The 2025 PA-40 instructions say a resident must file only if total PA gross taxable income for 2025 exceeded $33, or if there was a loss from any transaction. Military retired pay is not PA-taxable compensation, and Social Security is also listed as not taxable, so a retiree with only those two sources has nothing over the $33 line. Interest, dividends, wages or a business can change that, and a resident with no PA income does not file even when the spouse must.

Is active-duty military pay taxed in Pennsylvania?

Only when it is earned in Pennsylvania. The 2025 PA-40 instructions say active duty pay is not taxable if a resident serves on full-time active duty, or federal active duty for training, outside the state, and orders must be attached to prove it. Pay earned while in Pennsylvania, or while not on active duty status, goes on Line 1a. The instructions add a caution: Public Health Service and NOAA compensation is taxable whether earned inside or outside Pennsylvania.

Sources, read October 9, 2026

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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.