By: Mark Rhea, J.D., CPA, CVA- Senior Assistant Accountant
Retired U.S. Military Veterans who are Ohio residents and receive retirement income administered through the Defense Finance and Accounting Service (DFAS) may exclude their military retirement income attributed to their Federal Adjusted Gross Income from Ohio Income Tax. But did you know that U.S. Military Veterans who go on to continue their service to our country through employment with the Federal Government may be able to have a portion of their Civilian Federal Retirement Income exempt from Ohio Income Tax as well? I’ll explain below.
Historically, many veterans who served in the U.S. Armed Forces have found employment with the Federal Government after they were honorably discharged. The individual veteran will likely have had their military service time included in their Federal Civilian Retirement Plan whether it was with the Civil Service Retirement System (CSRS) for Federal Employees hired prior to 1987 or the Federal Employees Retirement System (FERS) for those hired in 1987 and after. The portion of the Federal Civilian Retirement Income that is attributable to the veteran’s military service time will be exempt from Ohio Income Tax. The formula to figure out the portion of the Federal Civilian Retirement Income that is attributable to military service is straightforward and simple. Below is an example of the calculation.
Let’s say a veteran named Chip is paid $60,000 per year from his Federal Civilian Retirement Plan of which $50,000 is included in his Federal Adjusted Gross Income. Chip has 40 years of service credit with the Federal Government with 4 of those 40 years acquired through Chip’s service in the U.S. Navy. The portion of Chip’s Federal Civilian Retirement Plan that is attributable to his military service time is 10% (4 years in the U.S. Navy/40 years total Federal Government service). Chip’s portion of his Federal Civilian Retirement Income that is exempt from Ohio income tax is $5000 (10% * $50,000 Federal Civilian Retirement Income included in Federal Adjusted Gross Income). The $5000 amount exempt from Ohio income tax is entered on Line 28 of Ohio Schedule A and will be included with all other deductions from Ohio Schedule A on Line 2b of Ohio IT 1040.
If you believe that you or a veteran you know may be eligible to take advantage of this deduction, the first thing that should be done is to contact the U.S. Office of Personnel Management (OPM) at either firstname.lastname@example.org or at 1-888-767-6738 to find out the percentage of years of service to our country are attributed to the U.S. Armed Forces. Once that is determined, you can calculate the amount of the Federal Adjusted Gross Income that is attributable to service in the U.S. Armed Forces either on your own or with the help of a tax professional.
The state of Ohio has seen fit to reward those who have served our country by not taxing their military retirement income. Veterans need to be aware of this. At Holbrook & Manter CPAs, we stand ready to help you with all your income tax needs.