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Military and Veterans Affairs

Division approves military pay income tax relief

published 1/31/2011
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After 20 years of service, military personnel are eligible to retire and finally settle down somewhere after perhaps a career of being assigned across the country or after multiple tours of overseas duty.

A pair of bills approved by the House Veterans Services Division would offer varying degrees of tax incentives aimed at attracting those military retirees, who often look for a place to start a second career, buy a home and spend their military retirement pay within the community. The division approved both bills and referred them to the House Taxes Committee.

Minnesota is one of only six states that taxes military pension incomes. Bill proponents said that deters many highly skilled, disciplined and entrepreneurial veterans from returning home or relocating here to start a second career and contribute to the local economy.

Sponsored by Rep. Lyle Koenen (DFL-Clara City), HF15 would allow veterans to subtract up to $6,000 of their military retirement pay from their income taxes beginning with their 2011 taxes. To be eligible, the veteran must have served honorably for 20 or more years. National Guard or Reserve personnel who have earned credit for 20 or more years would become eligible for the tax relief when they retire, typically at age 60. Sen. Gary Kubly (DFL-Granite Falls) sponsors the companion, SF74, which awaits action by the Senate Taxes Committee.

Rep. Bob Dettmer (R-Forest Lake) sponsors HF82, which takes a phased-in approach for reducing the income tax for military retirement pay. Beginning with the 2011 taxable year, retired veterans would see a 20 percent reduction in their military income taxes. That amount would increase to 35 percent in 2012 and 55 percent in 2013 taxable years.

In 2014, if the number of retired veterans claiming the tax break is at least 1,000 greater than the number claimed in 2011, the phase-in rate would increase each year until 75 percent of their military retirement pay is not taxable. Ultimately, if the number of veterans receiving the tax break reaches 2,000 more than those who claim it in 2011, then 100 percent of military retirement pay would not be subject to state income taxes.

A companion, SF41, sponsored by Sen. Ted Daley (R-Eagan), awaits action by the Senate Taxes Committee.

Former Rep. Dan Severson told members that in a state-by-state comparison, Minnesota should have about 32,000 retired military living here, but there are only an estimated 15,000.

“We should be bringing in half a million just from pensions,” Severson said. Military retirees are highly mobile and do their research. One of the first things they are told when exiting military life is which states would tax their pension, Severson said.

- Sue Hegarty

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