October 13, 2006, Newsletter Issue #35: Taxes on Retirement Benefits

Tip of the Week

Retirement pay is probably the best-known veteran benefit, and sometimes the most confusing when it comes to tax particulars. For example, the military retirement benefit--retirement pay--is subject to federal income tax. In some states such as Michigan, retirement pay is exempt from state taxes. Retirement pay tax issues get trickier when the IRS issues a tax levy on someone who owes back taxes.

If your retirement pay is garnished, it automatically comes out of your payments until the matter is settled. Don't waste time trying to contact the Defense Finance and Accounting Service to settle the matter, as they will refer you to the IRS. Your retirement pay is indeed your earned veteran benefit, but only the Internal Revenue Service can put a stop to or modify the garnishment of your military retirement benefit.

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