New in 2021- Not updated in TurboTax - Arizona Exempts 100% of Military Retired Pay from State Income Tax.
Beginning with 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.
Identifying Other Taxable Income | Arizona Department of Revenue (azdor.gov)
If you purchased TurboTax State product for Arizona, the interview has not been updated to reflect this change. This may result in an erroneous increased state tax burden for military retirees living in Arizona. I called TurboTax support and the issue was submitted to the programmers for a future update.
The workaround is to open Forms and select AZ Form 140. Enter the amount of the military pension on Line 29B. (Leave 29A blank unless you qualify for both.) 
This will update the taxable income amount in TurboTax to the correct amount.
