Yes, Oregon generally taxes retirement income, including military retirement pay. However, many military retirees may qualify for Oregon's Federal Pension Income Subtraction, which can allow all or part of their military retirement income to be excluded from Oregon taxable income.
Who Qualifies?
Military retirement benefits may qualify for the Federal Pension Income Subtraction if the retirement income:
- Is included in your federal adjusted gross income (AGI).
- Is paid from a qualifying federal retirement plan.
- Is based on federal service performed before October 1, 1991.
How Much Can I Subtract?
The amount you can subtract depends on when your qualifying service was performed:
- 100% subtraction if all qualifying federal service occurred before October 1, 1991.
- No subtraction if all qualifying service occurred on or after October 1, 1991.
- Partial subtraction if your service occurred both before and after October 1, 1991. In that case, Oregon allows a percentage of your retirement income to be subtracted based on your pre-October 1991 service.
What About Military Retirement Based on Retirement Points?
For reservists and National Guard retirees, Oregon allows you to calculate the subtraction using retirement points earned before October 1, 1991, rather than months of service.
Does This Include TSP Withdrawals?
It can.
Withdrawals from a federal Thrift Savings Plan (TSP) may qualify for the Federal Pension Income Subtraction if the withdrawals are connected to qualifying federal retirement service. However, if retirement funds are rolled from a TSP into another type of account, the account generally loses its federal pension character and future withdrawals may no longer qualify for the subtraction.
Where Do I Enter the Federal Pension Income Subtraction?
To enter the subtraction in the program:
- Go to State.
- Select Subtractions From Income.
- Select Federal Pension Income Subtraction.
- Complete the worksheet using your federal service dates or retirement point information.