Arizona Retired Military Exemption

[DawnC · Accepted solution]

New for 2019 is Exclusion for retired or retainer pay of the uniformed services of the United States. A taxpayer who receives benefits, annuities, and pensions as retired or retainer pay of the uniformed services of the United States may subtract the amount received, or $3,500, whichever is less. If married, each spouse is eligible for the subtraction.  The subtraction will be done on your Arizona state return.  

[bobmadsen]

I see the post of how much Arizona allows for military retirement, but how do you enter it on the turbo tax program for Arizona 

[AmyC]

Please follow these steps:

1. Return to federal section
2. Income
3. 1099-R
4. Edit/Update
5. Select your military retirement 
6. Edit/review/update
7. Scroll down your 1099-R to the bottom section
8. Make sure you have entered AZ into the state ID box 13.
9. If you can fill in lines 12-14, even better. Minimum, box 13 must have AZ in it.
10. screen Double check your info, select NO
11. Continue
12. screen Public Safety Officer, select NO
13. Continue
14. screen Select your state, select AZ box
15. screen Where is this from? select retired or retainer pay of the uniformed service of the US
16. Fill in the state information (lines 12-14 on 1099-R)
17. Continue
18. screen Was this from a qualified plan: Select From a Qualified Plan
19. screen What did you do? Select Did something else
20. Continue
21. screen for Qualified disaster, select No
22. screen for Periodic Payments, select Yes
23. finish up the last 2 questions with your personal information

@bobmadsen

[bobmadsen]

I have read that AZ gives 3500 dollars deduction  but what is the credit nnumber you use and where do you use  it and how

[DMarkM1]

There is no credit form to enter since this tax benefit is an exclusion of income not a credit.  When you enter your 1099-R information you will get to a page asking "Where did this distribution come from?" You should select the "Retired or Retainer ...from Uniformed Services" button.  That will exclude $3500 from your AZ income.

[doererc]

I entered my military retirement 1099-R and ensured AZ was added to Block 15.  Turbo Tax never took me to the question where I could indicate the 1099-R was for military pension.  What am I missing?

[ErnieS0]

You should see a screen in the federal 1099-R section called Where is your distribution from? Select Retired or retainer pay of the uniformed services of the U.S.

If you do not see that screen, try deleting and re-entering your 1099-R.

Arizona allows a $2,500 subtraction from Arizona gross income for qualifying public pension income received from one or more sources, which includes retired or retainer pay of the uniformed services of the United States.

[Tucson Tom]

43-1022.Subtractions from Arizona gross income

2. Benefits, annuities and pensions in an amount totaling not more than $2,500 received from one or more of the following:

 (a) The United States government service retirement and disability fund, the United States foreign service retirement and disability system and any other retirement system or plan established by federal law, except retired or retainer pay of the uniformed services of the United States that qualifies for a subtraction under paragraph 26 of this section.

26. Benefits, annuities and pensions received as retired or retainer pay of the uniformed services of the United States in amounts as follows:

(a) For taxable years through December 31, 2018, an amount totaling not more than $2,500.

(b) For taxable years beginning from and after December 31, 2018 through December 31, 2020, an amount totaling not more than $3,500.

(c) For taxable years beginning from and after December 31, 2020, the full amount received.

[DariusGilmoreinAZ]

I am married and this applies to me. Does this mean that I would add $7,000 in that box ($3,500 for me and $3,500 for her) for the exemption? I am following the instructions in this thread and it says if married we both qualify. I just need to confirm that's how I add it or if it's just $3,500. Thank you. 

[DMarkM1]

For tax years 2021 and forward AZ does not tax military retirement pay at all (Click here for AZ DOR reference) .  Assuming you and your spouse each received a form 1099R for military retirement, the entire taxable amount on those forms will be excluded from AZ taxable income.

When you enter each form 1099-R for the military retirement pay in the federal "Wages and Income" section, you will arrive at a follow on question "Where is your distribution from?"  You should select "Retired or retainer pay of the Uniformed services of the US."  On the next page you should select "non-qualified plan" since it is military retirement.

This will automatically exclude all of the military retirement pay on that 1099R from AZ taxable income.