Updated October 4, 2026. Quick answer: No, for tax years 2022 and later. The 2025 IT-40 booklet says “the deduction is equal to the entire amount of military retirement income” and survivor’s benefits, with no dollar cap or age threshold printed.
More state retirement-income schedules, line by line: Indiana Schedule 2 retirement deductions.
How Indiana treats military retired pay
| Item | What the documents say |
|---|---|
| Treatment | Deduction of military retirement income and survivor’s benefits; the entire amount for 2022 and later |
| Where claimed | Schedule 2 under line 11, Other Deductions, with code 632 |
| Paperwork | Enclose the military retirement income statement with the return |
| Cap or age | None printed |
A $30,000 example
A retiree with $30,000 of military retired pay deducts the entire $30,000 with code 632, so none of that pay is left to tax.
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What changes in 2026
The booklet says the Indiana General Assembly in 2026 may enact changes adopting P.L. 119-21 provisions, but no change to this deduction is printed.
Federal rules
The state’s treatment sits on top of the federal one. The IRS explains the federal side in Publication 3, Armed Forces’ Tax Guide.
Related: whether Indiana taxes pensions, how Indiana taxes retirement income, military retirement pay by state, and the military retirement calculator.
Sources
- 2025 IT-40 Full-Year Resident Individual Income Tax Booklet: https://forms.in.gov/Download.aspx?id=16915
Sources: the primary documents linked above, read on October 4, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.