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Iowa Military Pension Exclusion

On May 26, 2014, Iowa Governor Branstad signed into law a provision for the exclusion of military retirement benefits from Iowa individual income tax. The change will be effective for the tax year beginning January 1, 2014.

This exclusion also applies to military survivor benefits and is available for both residents and non-residents of Iowa.

The exemption is in addition to the general $6,000/$12,000 pension exclusion available for Iowa taxpayers 55 years of age or older.

For example, if a married individual age 65 receives $20,000 in military retirement pay and $25,000 in pension income from a former employer, that individual will be able to exclude $32,000 ($20,000 plus $12,000) of pension income on their Iowa income tax return.

This military pay, unlike other pension income, is not included in the calculation to determine if you are required to file an Iowa individual income tax return. This is also not included in the calculation of the alternative tax for those taxpayers just above the filing threshold.

Individuals who currently have withholding from their military retirement benefits may want to change or eliminate the amount of Iowa tax being withheld. You may obtain form Iowa W-4P (Withholding certificate or pension or annuity payments) on the Iowa Department of Revenue website

The form should be completed and mailed to the following address:

Defense Finance and Accounting Service (DFAS)
US Military Retirement Pay
P.O. Box 7130
London, KY 40742-7130

If you have any questions regarding the Iowa military pension exclusion, please do not hesitate to give us a call.