15 Worst States for Military Retirees: 2017

“For the sake of fairness, there is a good argument that military retirees should pay state taxes at the same level as people receiving other types of retirement pay,” Caleb Stone, Equal Justice Works AmeriCorps Legal Fellow in the Jr. Veterans Benefits Clinic at William & Mary Law School, said in WalletHub’s 2017 ranking of the best and worst states for veterans. “On the other hand, many military retirees are relatively young people in their primes who are starting second careers. States may therefore do well to provide incentives to attract these people to live within their borders and contribute to their local economies.”

Richard Pusateri, military and veterans services manager in the John Jay College of Criminal Justice at the City Unversity of New York, concurred, noting, “I really appreciate New York State and New York City not taxing my retirement pay. It encourages a military retiree to settle in higher cost parts of the country,” he said in the report.

In determining the ranking, WalletHub weighted the way a state taxed military pensions twice as high as other economic factors, like general tax friendliness, the number of bases and dollars in defense contracts per capita, the share of veteran-owned businesses and job opportunities for veterans as well as job growth in general, and living and housing costs. The economic environment accounted for a third of a state’s score.

Taxes aren’t the only consideration for veterans considering relocation. Of the 41 states that charge income tax on residents, 14 exclude military pensions from that income, according to the Pew Charitable Trusts. However, many of those states are in the bottom 15 in this year’s ranking.

A third of a state’s score was based on its health care network, and a key factor in determining that score was the number of VA health facilities per veteran.

New Jersey, the state with the lowest health care ranking, has two main VA medical centers and 16 outpatient clinics. The U.S. Department of Veterans Affairs estimates there are more than 428,000 veterans living in New Jersey. For comparison, Illinois, which had the best health care ranking among states in the bottom 15, has five VA medical centers and 32 outpatient clinics that support more than 721,000 vets.

“VA is a system of last resort, particularly for Vietnam and earlier era veterans,” CUNY’s Pusateri said. “That large group often overshadows the needs of current era veterans.” He recommended outsourcing some of the benefits the VA provides as a potential solution.

Disability benefits for veterans wounded in combat are not taxed, but William & Mary’s Stone said that combat-related special compensation is a benefit that is underutilized. “CRSC is tax-free compensation paid by the Department of Defense for disabilities incurred because of armed conflict, hazardous duty, instrumentalities of war or simulated war,” he told WalletHub. “Retirees who have disabilities related to these causes should consider applying for CRSC through their branch of service.”

Quality of life accounted for the final third of a state’s score, and was based on factors like weather, recreation and educational opportunities, as well as the size of the veteran community, the share of VA administrative facilities per veteran, and the share of veterans who were homeless.