According to the Arizona Instructions, if you receive pension income from any retirement system or plan established by federal law, you will be able to subtract up to $2,500 from your income that you are reporting on your Arizona return.
If you are married filing jointly, each spouse will be able to subtract their own retirement amount up to $2,500, each.
What about military retirement?
As of tax year 2021, if you received benefits, annuities and pensions as retired or retainer pay of the uniformed services of the United States, you may subtract 100% of the amount you received. If both you and your spouse each received such income, each spouse may subtract 100% of the amount received.
When creating your Arizona return, the program will ask you "Does the Taxpayer and/or the Spouse qualify for an exclusion for U.S. Government, Arizona State or Local Government Pensions?". When you select YES, you will arrive at the entry box for this subtraction.
To find this entry, please go to:
- State Section
- Edit Arizona Return
- Subtractions from Income