No. Alabama fully exempts U.S. military retirement pay, and the survivor benefits that come from it, from state, county and city income tax. The Alabama Department of Revenue lists military retirement pay as exempt income, and the exemption is written into the Code of Alabama at §40-18-20.[1,2]
What the law says
Code of Alabama §40-18-20 started in 1975 with a partial exemption (the first $4,750) and raised it in steps. Subsection (d) says that effective January 1, 1989, "and for all successive tax years, all retirement payments or compensation recognized under this section shall be exempt."[2]
The section covers retirement pay "received as retirement benefit from the military services by any person retired from the military services of the United States of America and survivor benefits derived therefrom." It exempts that income "from any state, county or municipal income tax or like tax by whatever name called."[2]
What's covered, and what to check
| Income | Alabama income tax |
|---|---|
| Military retirement pay | Exempt[1,2] |
| Survivor benefits derived from military retirement | Exempt[2] |
| VA disability retirement payments and other VA benefits | Exempt (on ADOR's exempt list)[1] |
| Federal Civil Service Retirement System benefits | Exempt (on ADOR's exempt list)[1] |
| Social Security benefits | Exempt (on ADOR's exempt list)[1] |
| Thrift Savings Plan (TSP) withdrawals, a second-career salary, or contractor pay | Not on ADOR's exempt list. Ask ADOR or a tax professional how yours is treated.[1] |
Federal tax still applies
The Alabama exemption is for state and local tax only. The IRS says military retirement pay based on age or length of service is taxable and is reported as a pension on your federal return.[3]
How this compares with where you're coming from
- North Carolina lets retirees deduct military retirement pay if they served at least 20 years or were medically retired under 10 U.S.C. Chapter 61.[4]
- Virginia lets retirees subtract up to $40,000 of military retirement income on 2025 and later returns.[5]
- Texas has no state individual income tax.[6]
- Colorado allows a partial subtraction.[7]
Moving from one of those places? See our PCS move guides to Huntsville.
Other Alabama rules retirees ask about
- Veteran benefits, property tax, SkillBridge and defense jobs: leaving the military and moving to Huntsville.
- Homestead exemption and millage by city: Huntsville property tax and homestead.
General information from official sources, not tax advice. Your situation may differ; free help is available through Military OneSource MilTax.[8]
Frequently asked questions
Does Alabama tax military retirement pay?
Is the Alabama military retirement exemption capped?
Does Alabama tax SBP survivor benefits?
Is military retirement pay taxed federally?
Sources
Facts on this page were checked against these sources on October 24, 2026. Rules, hours and figures change, so confirm with the official source before you act.
- Alabama Dept. of Revenue: Income exempt from Alabama income taxation (lists military retirement pay)
- Code of Alabama §40-18-20: Exemptions, military retirement benefits (Justia, 2025 Code)
- IRS Publication 525: Taxable and Nontaxable Income (military retirement pay)
- North Carolina Dept. of Revenue: Military retirement deduction
- Virginia Tax: Military Benefits Subtraction FAQ
- Tax Foundation: State Individual Income Tax Rates and Brackets, 2026
- Colorado Dept. of Revenue: Retired servicemembers (military retirement subtraction)
- Military OneSource: Taxes (state residency, SCRA/MSRRA basics)