Military Retirement - Disability and Taxes

I am a military retiree with a 20% disability. For purposes of this question, assume that: annual military retirement is $80,000; $3,200 of the $80,000 is for disability; Federal taxes exclude disability ($80,000 - $3,200); New Jersey does not tax military retirement.

How do I set ESPlanner to exclude the $3,200 disability from federal taxes and $80,000 from New Jersey state tax?

Thank you for the assist!


Dan Royer's picture

ESPlanner will not distinguish Federal and State tax consequences, so you'll need to enter the full $80,000 as either a pension or a series of Special Receipts. (I'm not sure off hand which is better in your case; if it's not partially indexed to inflation, you can just use special receipts I believe). This will cause you to be taxed on the whole thing.

Basically you're going to have to estimate the state tax burden on the 80K and give yourself special receipts to offset the tax increase and estimate the federal tax burden on the 3,200 and give yourself a special receipt for that amount in those years. Running it once through as a non-taxable special receipt and then again as a taxable special receipt might reveal the fed and state tax consequences on the 80K. You could also run just the 3200 and see the tax consequences on that amount separate from the 80K

Perhaps separate the series of special receipts into two groups if that's easier: 76,800 and 3,200.

I believe if you first enter it as a taxable special receipt, you'll see the state tax consequence, then you can reimburse yourself for that amount as a series of tax-free special receipts.

I guess think of a way to enter it that will require the least amount of guess work.

Thanks Dan!