Tax Exemptions for Military Retirees

Published: Feb. 10, 2015 at 4:35 PM CST
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(KARE)- Many military retirees end up in warmer states than Minnesota, both when it comes temperatures and tax climate.

But there are several bills in the hopper this year in the State Legislature designed to draw those retirees here, and hold onto the ones who already live in Minnesota.

"Most of them will be in the 40's, so they'll be starting a second career and that's an economic boost for the state," Rep. Bob Dettmer of Forest Lake told KARE

He said there are 370,000 military veterans living in Minnesota, and at least 18,000 of them were career military members who served long enough to earn a pension.

Rep. Dettmer would like to see at least part of those pensions exempt from state income taxes.

"This is one way we can send a message out there, that, hey, when you're done with your military career, why not spend it here in Minnesota?"

Dettmer, a longtime wrestling coach at Forest Lake High School, also spent 25 years in the US Army Reserves before retiring a few years ago.

His reserve unit's deployments included a 20-month stint in the second Gulf War after 9-11. Both of Dettmer's sons graduated from West Point and served overseas.

"If we really want to hire veterans we've got to get them to live here. We want to have them stay here, put their kids in school, buy homes, and be part of Minnesota. Many other states have already figured this out."

Currently seven states have no state income tax at all. Another 37 states exclude all or part of military pensions from state income taxes. Minnesota is one of six states in the nation that fully tax military benefits.

Dettmer's bill would exempt up to $30,000 of a military retirees' annual earnings, regardless of rank. Even though the state would be foregoing some revenue in the short run, he asserted the long term economic benefits out weigh the costs.

"We should so all we can to keep that workforce here in Minnesota because these men and women have 20 years of experience, leadership, they've gone through a lot of training, and many are arriving with federal health benefits and GI Bill benefits."

Dettmer's House committee on Wednesday heard a competing bill, offered by Rep. Josh Heintzeman of Baxter. Heintzeman's bill would exclude all military pensions from taxable income.

Rep. John Persell of Bemidji pointed out that for a retired four-star general living in Minnesota that would translate to nearly a $200,000 tax break. Rep. Persell, an Air Force veteran and American Legion Honor Guard member, said he couldn't support a bill that didn't place a cap on how much would be exempt.