Updated October 4, 2026. Quick answer: Generally yes, with one service-date rule. Publication OR-17 describes no exclusion for military retired pay as such. The relief it prints is a federal pension income subtraction: a taxpayer may “subtract 100 percent of the taxable federal pension income” only if all service was before October 1, 1991, and nothing if none was.
How Oregon treats military retired pay
| Item | What the documents say |
|---|---|
| Treatment | Not exempt as such; the Oregon subtraction for federal pension income (ORS 316.680(1)(e), subtraction code 307) may apply |
| All service before October 1, 1991 | Subtract 100 percent of the taxable federal pension income |
| No service before October 1, 1991 | No subtraction |
| Service on both sides | Subtract a percentage: months of service or points earned before October 1, 1991 divided by total months or points; the percentage stays the same from year to year |
| Military pay subtractions | OR-17 lists active duty pay, reenlistment bonuses and guard and reserve training pay for its military pay subtractions; retired pay is not listed there |
| Rates | 4.75%, 6.75%, 8.75% and 9.9%, with 9.9% above $125,000 for single filers and $250,000 for joint filers |
| Gap | The federal pension passage does not name military retired pay in so many words; confirm with the Oregon Department of Revenue before relying on it |
A $30,000 example
A retiree whose service all came before October 1, 1991 and who has $30,000 of taxable federal pension income subtracts all $30,000.
A retiree whose service all came after that date subtracts nothing, so the whole $30,000 stays in Oregon income.
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What changes in 2026
No 2026 change is printed in the documents read.
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 Oregon taxes pensions, how Oregon taxes retirement income, military retirement pay by state, and the military retirement calculator.
Sources
- Publication OR-17, Oregon Individual Income Tax Guide (2025, Rev. 01-29-26): https://www.oregon.gov/dor/forms/FormsPubs/publication-or-17_101-431_2025.pdf
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.