An Act To Exempt Retired Military Pay from State Income Tax
Maine Legislature, Session 125, LD 0647
Committee: Taxation
Sponsors: JOHNSON, BURNS, HARVELL, KNIGHT, CROCKETT, DAMON, HARMON
Amends: 36 MRSA §5122

Legislative Document 
No. 647 
H.P. 477 
House of Representatives, February 17, 2011 
An Act To Exempt Retired Military Pay from State Income Tax 
Reference to the Committee on Taxation suggested and ordered printed. 
HEATHER J.R. PRIEST 
Clerk 
Presented by Representative JOHNSON of Greenville. 
Cosponsored by Representatives: BURNS of Alfred, HARVELL of Farmington, KNIGHT of 
Livermore Falls and Representatives: CROCKETT of Bethel, DAMON of Bangor, HARMON 
of Palermo. 
Be it enacted by the People of the State of Maine as follows: 
Sec. 1.  36 MRSA §5122, sub-§2, ¶M, as amended by PL 2005, c. 218, §53, is 
further amended to read: 
M.  For each individual who is a primary recipient of pension benefits under an 
employee retirement plan, an amount that is the lesser of: 
(1)  Six thousand dollars reduced by the total amount of the individual's social 
security benefits and railroad retirement benefits paid by the United States, but 
not less than $0.  The reduction does not apply to benefits paid under a military 
retirement plan; or 
(2)  The aggregate of pension benefits under employee retirement plans included 
in the individual's federal adjusted gross income. 
For purposes of this paragraph, the following terms have the following meanings.  
"Primary recipient" means the individual upon whose earnings the employee 
retirement plan benefits are based or the surviving spouse of that individual.  
"Pension benefits" means employee retirement plan benefits reported as pension or 
annuity income for federal income tax purposes.  "Employee retirement plan" means 
a state, or federal or military retirement plan or any other retirement benefit plan 
established and maintained by an employer for the benefit of its employees under the 
Code, Section 401(a), Section 403 or Section 457(b), except that distributions made 
pursuant to a Section 457(b) plan are not eligible for the deduction provided by this 
paragraph if they are made prior to age 55 and are not part of a series of substantially 
equal periodic payments made for the life of the primary recipient or the joint lives of 
the primary recipient and that recipient's designated beneficiary.  "Employee 
retirement plan" does not include an individual retirement account under Section 408 
of the Code, a Roth IRA under Section 408A of the Code, a rollover individual 
retirement account, a simplified employee pension under Section 408(k) of the Code, 
a military retirement plan as defined in paragraph HH or an ineligible deferred 
compensation plan under Section 457(f) of the Code.  Pension benefits under an 
employee retirement plan do not include distributions that are subject to the tax 
imposed by the Code, Section 72(t).  "Military retirement plan" means benefits 
received as a result of service in the active or reserve components of the Army, Navy, 
Air Force, Marines or Coast Guard; 
Sec. 2.  36 MRSA §5122, sub-§2, ¶FF, as corrected by RR 2009, c. 2, §112, is 
amended to read: 
FF.  To the extent included in federal adjusted gross income, student loan payments 
made by the taxpayer's employer in accordance with section 5217-D; and 
Sec. 3.  36 MRSA §5122, sub-§2, ¶GG, as reallocated by RR 2009, c. 2, §113, is 
amended to read: 
GG.  To the extent included in the taxpayer's federal adjusted gross income, the 
recovery of a portion of a federal standard deduction claimed in a prior year for 
which the taxpayer was not allowed under this Part to reduce federal adjusted gross 
income or Maine adjusted gross income for that year.; and 
Sec. 4.  36 MRSA §5122, sub-§2, ¶HH is enacted to read: 
HH.  The benefits paid under a military retirement plan in an amount equal to: 
(1)  Twenty percent of the benefits paid for tax years beginning on or after 
January 1, 2011, but before January 1, 2012; 
(2)  Forty percent of the benefits paid for tax years beginning on or after January 
1, 2012, but before January 1, 2013; 
(3)  Sixty percent of the benefits paid for tax years beginning on or after January 
1, 2013, but before January 1, 2014; 
(4)  Eighty percent of the benefits paid for tax years beginning on or after January 
1, 2014, but before January 1, 2015; and 
(5)  One hundred percent of the benefits paid for tax years beginning or after 
January 1, 2015. 
"Military retirement plan" means benefits received as a result of service in the active 
or reserve components of the Army, Navy, Air Force, Marines or Coast Guard. 
SUMMARY 
This bill exempts from the state income tax military pension benefits received by a 
Maine resident as a result of military service in the active or reserve components of the 
Army, Navy, Air Force, Marines or Coast Guard.  The bill provides for a partial 
exemption of the benefit during the first 4 years that the exemption is allowed with a full 
exemption in the 5th year.