Active-duty pay
Fully Exempt
Active-duty pay fully exempt from Arizona income tax for AZ residents.
State Guide · AZ
Arizona — Military Tax Treatment
Arizona is one of the cleaner states for military pay: active duty fully exempt, retirement fully exempt since 2021. The main question mark is routine Guard drill pay — confirm your situation with AZ DoR.
Tax treatment at a glance
Guard & Reserve drill pay
Partially Exempt
Guard and Reserve pay during federal activation (Title 10 active duty orders) follows the active duty exemption. Routine state drill pay may be taxable — verify with Arizona DoR for Guard-specific rules.
Military retirement pay
Fully Exempt
Full exemption since 2021 for military retirement pay.
The numbers · verified for tax year 2025
Top marginal rate
2.5%
Retirement-pay exemption
Full
Military retirement/retainer pay is 100% subtractable from Arizona gross income (fully exempt) beginning tax year 2021 — no cap, no age requirement.
Standard deduction
Arizona is a flat 2.5% and ties its standard deduction to the federal amount: $15,750 single / $31,500 MFJ for 2025.
VA disability compensation
Always tax-free
Federally tax-free under 38 USC § 5301. No state taxes VA disability compensation as income — Arizona included.
Survivor Benefit Plan (SBP)
Follows retirement
Arizona exempts military retirement — SBP annuities are generally exempt under the same provision.
Federal rules that override state law
SCRA — Servicemembers Civil Relief Act
Active-duty servicemembers pay state income tax only to their state of legal domicile — not the state where they are stationed. If you are from Texas and stationed in Arizona, Arizona cannot tax your military pay. This applies during all active duty periods and during Guard/Reserve mobilizations on federal (Title 10) orders.
MSRRA — Military Spouses Residency Relief Act
Military spouses can maintain their home-state domicile even when living in a different state due to their servicemember's orders. A spouse who is a Texas resident following their servicemember to Arizona can keep Texas as their tax domicile and avoid Arizona state income tax on their wages.
Guard & Reserve — the SCRA gap
SCRA pay protections apply during federal (Title 10) activation orders. During routine drill weekends and state-only activations, Guard and Reserve members are state residents serving in their home state — SCRA does not protect their drill pay from state income tax. Whether Arizona exempts that pay is the state-specific question answered above.
Filing watch-outs
- 01Claim the active duty exemption using AZ Schedule S
- 02Guard members on routine drill: verify with AZ DoR whether your drill pay qualifies under the "active duty" definition in AZ statute
Veteran-specific tax benefits
Veteran property tax exemption for 100% P&T disabled.
Official authority
https://azdor.gov/ ↗State tax law changes annually. Verify current rules with the Arizona Department of Revenue before making any tax decision.
Arizona military tax — common questions
Does Arizona tax military retirement pay in 2026?
Arizona fully exempts military retirement pay. Full exemption since 2021 for military retirement pay.
Does Arizona tax active-duty military pay?
Arizona fully exempts active-duty military pay for state residents. Active-duty pay fully exempt from Arizona income tax for AZ residents. Under the SCRA, Arizona can only tax the military pay of service members who are legally domiciled in Arizona — not those merely stationed there.
Does Arizona tax National Guard and Reserve drill pay?
Arizona partially taxes Guard and Reserve drill pay. Guard and Reserve pay during federal activation (Title 10 active duty orders) follows the active duty exemption. Routine state drill pay may be taxable — verify with Arizona DoR for Guard-specific rules.
Is VA disability compensation taxed in Arizona?
No. VA disability compensation is federally tax-free under 38 U.S.C. § 5301, and no state — including Arizona — taxes it as income.
If I'm stationed in Arizona but claim another state, can Arizona tax my military pay?
No. Under the Servicemembers Civil Relief Act (SCRA), active-duty pay is taxable only by your state of legal domicile, not the state where you are stationed. If your domicile is elsewhere, Arizona cannot tax your active-duty military pay. Military spouses get the same protection under the MSRRA.
Related tools
Other state guides