Arizona Tax return Military retirement pay deductions

[utah-arizona-taxlady]

My client was career USAF and is retired in Arizona. Can he take both the $2500 and the $3500 deduction on the Arizona Form 140? Line 29a and 29b  I read through the instructions and I think I am reading he can.  For line 29a it is a United States Government Service Retirement and for 29b it is retirement pay for Uniformed Services of the US.   (These are both the same pension and exceed the $6000 total. 

[RollTide68]

I would say that the deduction would be limited to the Uniformed Services of the United States.  

However, if your client was retired USAF and retired Civil Service.  I would say he would be eligible for $2500 deduction on the Civil Service retirement and a $3500 on his military retirement.

[utah-arizona-taxlady]

Thank you RollTide68.  Do you do a lot of Arizona taxes?  He seems to think he gets both.  I have been looking and looking and can't find anything specific.  Line 29a instructions say "This applies only to those retirement plans authorized and enacted into the U.S. Code.  This does not apply to a retirement plan that is only regulated by federal law (i.e., plans which must meet certain federal criteria to be qualified plans)."  But Arizona doesn't tell what the federal criteria is.  I have found US Codes associated with DFAS pay but to be honest I am not sure.  hmmmm

[RollTide68]

I am retired military and have several clients in different states that are also retired military/civil service.  I don't have clients in AZ but reading the instructions and comparing to what other states (SC comes to mind) do that is how I interpret the instructions.

[RandyAZ]

Has an AZ accountant, I agree totally with RollTide68.  I have a client that is retired military and retired postal service.

[utah-arizona-taxlady · Accepted solution]

Well RollTide68 I think you are correct.  I just found a ruling online for this ARIZONA INDIVIDUAL INCOME TAX RULING ITR 11 -3 and it just states that the $3500 is it after Dec 31, 2018.  It use to be $2,500.  Hopefully my client will agree.  I doubt he will try to find something to dispute it.  I think his information is all hearsay.  I went to the DFAS website and nothing there specific to AZ. 

[utah-arizona-taxlady]

Thank you to all of you.  I will let him know.  I appreciate all your input and I agree with all of you!  Happy Tax Season to all of you!

[kgudgel]

I know this was posted a while ago and marked as solved. But I wanted to give some references for those who search this forum in the future.

A.R.S. Sect 43-1022(2)(a) says:

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 qualify for a subtraction under paragraph 29 of this section.

and A.R.S. Sect 43-1022(29) says:

29. 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, an amount totaling not more than $3,500.

Because of the wording of 43-1022(2)(a) which says EXCEPT section 29, my interpretation is that for a military pension, they may ONLY deduction $3500 for the same pension.  If on the other hand they have a civil service pension and a separate military pension they can deduct $2500 for the civil service and $3500 for the military.  And if both spouses are receiving military pensions, they may each deduct $3500. 

[BobKamman]

Yes, both can be claimed.  The easiest way to figure that out is to look at the Form 140.  

[utah-arizona-taxlady]

I disagree, I don't think you can take both in this case.  See the reply from kgudgel.  In 2 (a) of the code it says EXCEPT uniformed services.  So if all military pay is from service in the Air Force (in this case) only the $3,500 for 2019 tax year can be deducted.  This client is in his late 90s, and I do not need him to get a letter from the Arizona Department of Revenue telling him he owes more tax.  He is a WWII, Korea, and Vietnam Veteran, one of my favorite clients.  Still sharp as a tack.  🙂

[BobKamman]

I thought the original question involved someone receiving two pensions -- one military, one civilian -- but I see from the last line that there is only one pension.  So if he is not a double dipper, he just gets the $3,500.  

The first return involving this situation, I did wrong, but my client needed only the $3,500 to get down to zero tax, the $2,500 for his school pension was not needed.  I also did some research and I think it applied to 2018 returns also -- this was part of the retroactive law passed in May 2019 -- but I would double check that before filing an amended return for a possible $140 refund.