How Does Delaware Tax a Military Pension in Retirement?

Part of our Delaware Retirement and Second Home Guides.

By Christine Davis, REALTOR and Co-Owner, Active Adults Realty, Lewes, Delaware. Published September 29, 2026. Figures on this page were checked September 29, 2026, against the Delaware General Assembly, the Delaware Division of Revenue and the other sources listed at the end.

Prefer to read? The full guide is written out below.

Why generic retirement tax advice does not fit a military pension

Most retirement advice is written for somebody who stops working at 65, and it sorts states by how they treat people over 60. If you went in at twenty and did your twenty, you are out at forty, with a pension, a working body and probably another whole career ahead of you. That advice was not written for you, and in Delaware the difference is not cosmetic. It is written into the statute.

I did a little over eight years in the Air Force in civil engineering. Holland, Korea, New Mexico, and then Andrews just outside Washington. It was from Andrews that I first drove across the Bay Bridge and ended up standing on a beach in Delaware with no idea I was looking at the place I would spend the rest of my life. I moved to Rehoboth in 1999 and I have been here twenty seven years.

What does Delaware's military pension exclusion actually cover?

Delaware lets you exclude a set amount of military pension income from your Delaware state income tax, regardless of your age. For tax year 2026 that amount is $12,500.

The comparison is the whole point. A filer under 60 with a civilian pension excludes $2,000. A filer under 60 with a military pension excludes $12,500. The state wrote that difference in deliberately. So if you are that forty year old out of twenty, you are not waiting two decades to get the benefit.

The signed law defines a United States military pension as one received for service in the Army, Navy, Air Force, Marine Corps, Space Force, Coast Guard or National Guard, or in the commissioned corps of NOAA or the Public Health Service.

This is state income tax, so it works the same way whether you settle in New Castle, Kent or Sussex County.

A few other things that are on the books in Delaware and are worth knowing alongside it, also the same in all three counties:

• Delaware does not tax Social Security benefits.
• There is no state sales tax in Delaware. Not a low one. None.
• Delaware repealed its estate tax for the estates of people dying after December 31, 2017, and Delaware has no inheritance tax.

What are the amounts year by year?

Senate Bill 219 of the 153rd General Assembly was signed August 17, 2026. It phases the military pension exclusion up in steps:

Tax year	Military pension exclusion
2026	$12,500
2027	$15,000
2028	$20,000
2029 and after	$25,000

The statute sets the same dollar amount for filers under 60 and filers 60 and over in each of those years.

Two honest things about it, because the whole rule is more use to you than the headline. This year is still $12,500. The larger numbers begin with the 2027 tax year, so they are not on your 2026 return. And it is signed, not proposed. That part is done.

What is the residency requirement under SB 219?

This is the part I have seen repeated wrong, so here is what the law says.

The residency test is written for filers age 60 or older. For a person age 60 or older who was legally domiciled in Delaware before January 1, 2027, the requirement is to have been legally domiciled in the state for at least three years. For a person age 60 or older who becomes legally domiciled in Delaware on or after that date, it is at least five years.

As the signed text is written, that test is a condition on the pension subtraction as a whole for filers 60 and over, not only on the military part of it.

If you are under 60 with a military pension, that test is not written against you. Do not let anybody tell you a forty year old has to wait five years for this.

That is our reading of the statutory text as signed. It is not advice, and if this affects a real decision, have your own tax professional read the section against your facts.

Does this stack with Delaware's regular pension exclusion?

Delaware's general exclusion for pension and eligible retirement income is $12,500 for filers aged 60 and over, and $2,000 for filers under 60. Eligible retirement income there takes in things like dividends, interest, capital gains, net rental income and qualified plans such as IRAs, 401(k)s and Keogh plans. For a filer 60 or over, pension and eligible retirement income together cannot exceed $12,500 per person.

On how the two fit together, the statute is plain. For each age group it gives you the greater of the general exclusion or the military pension exclusion. You take whichever is larger. The two amounts are not added together.

How that works out on your own return, including what else counts toward the general exclusion and how it applies to each spouse, is a question for your tax professional or the Delaware Division of Revenue.

How far is Dover Air Force Base, and where is VA care?

Taxes are not the same thing as infrastructure, and infrastructure is what decides whether the life works.

Dover Air Force Base. From Lewes it is about 37 miles by road, and from Rehoboth Beach about 41 miles, which is roughly an hour of driving either way with light traffic. Allow more on a summer weekend on Route 1. From the Dover, Smyrna and Middletown side of Kent and New Castle it is much closer. On base there is a commissary, an exchange and a Retiree Activities Office. The Retiree Activities Office is run by volunteers from all the services and helps retirees and surviving spouses with things like TRICARE questions, space available travel and base services. There are plenty of pleasant retirement destinations where the nearest base is four hours away and you never go.

VA care in all three counties. Delaware's VA care is run by VA Wilmington Health Care. The medical center is on Kirkwood Highway in Wilmington, in New Castle County. Kent County has a VA clinic in Dover. In Sussex, the Sussex County VA Clinic is on Roth Avenue in Georgetown, in the middle of the county, about half an hour from Lewes. It has been at that Roth Avenue building since September 2017. For routine care in Sussex you are not driving to Wilmington or crossing into Maryland. In July 2026 VA Wilmington announced funding for the architecture and engineering design of a major lease in Sussex County. No site, size or opening date has been announced, so treat it as a plan, not a building.

The corridor. Washington, Baltimore and Philadelphia are all reachable in a day, comfortably, which matters if your care, your records or your friends are still there.

And where in Delaware, not just Delaware. The state is small and it is not uniform. Up north around Wilmington in New Castle County you are in the Philadelphia orbit, with different prices and a different commute. Central Delaware around Dover, Middletown and Smyrna is where the base is, and your money goes further there. Down in Sussex on the coast, Lewes and Rehoboth and Milton and Millsboro, is the most expensive part of the state and there is a reason for that.

If proximity to Dover is high on your list, look there hard, and do it before you fall in love with the coast. If I were doing it again I would have paid more attention to where in Delaware I was landing and less to the fact that it was Delaware. I bought near the beach, which worked out, but I never seriously looked at what an extra thirty minutes inland would have bought me, and I should have.

Drive all three counties, and do it in February, not July.

Two things to ask about the houses themselves

Association fees vary enormously here, and the range is wider than anybody expects. Two communities that look alike from the road can carry very different monthly fees. What is covered, what is not, and what the reserves look like are questions to ask early and in writing, not at settlement. We wrote that one out in full on our Delaware active adult community HOA fees page.

New construction timelines in Sussex County are genuinely in flux. A state law signed in July 2026 removed the required public hearing for major subdivisions, and Sussex County paused its hearings on major subdivision applications while it works out a process that fits the new law. As of late September 2026 the pause was still in place and no restart date had been announced. Some communities are approved and building, others are sitting. If a builder gives you a date, you want to know which side of that line your community is on. That is written out on our Sussex County subdivision pause page.

Neither of those is a reason not to buy here. They are reasons to ask better questions than the model home wants you to ask.

Come find us

If you are working through this and you want to talk to somebody who has actually done it rather than somebody who read about it, get in touch. There is no pitch and we will not chase you. Plenty of the people we work with were four or five years out when we first spoke, and that is completely normal. Ask us the question you have not been able to get a straight answer on and we will tell you what we know, including when the honest answer is that it depends.

Active Adults Realty
1504 Savannah Road, Lewes, DE 19958
Call 302-549-5164
Contact us

Nothing on this page is tax, legal or financial advice. Christine Davis is a licensed REALTOR, not an attorney or an accountant. Confirm your own situation with a tax professional and the Delaware Division of Revenue. Active Adults Realty is an independent brokerage serving Sussex, Kent and New Castle counties, Delaware. Equal Housing Opportunity.

Sources

• Delaware General Assembly, Senate Bill 219 (153rd General Assembly), bill detail and final engrossed text with Senate Amendment 1, signed August 17, 2026, Volume 85, Chapter 426. legis.delaware.gov
• Delaware Division of Revenue, Personal Income Tax FAQs: pension exclusion, eligible retirement income, Social Security. revenue.delaware.gov
• Delaware Code, Title 30, Chapter 11, Subchapter II (section 1106). delcode.delaware.gov
• Delaware General Assembly, 81 Del. Laws c. 52 (House Bill 16, 149th General Assembly), estate tax repeal. legis.delaware.gov
• AARP, Delaware State Tax Guide (sales tax, inheritance tax). aarp.org
• Dover Air Force Base, Base Directory and 436th Airlift Wing Retiree Activities Office page. dover.af.mil
• Defense Commissary Agency, Dover AFB Commissary store page. commissaries.com
• U.S. Department of Veterans Affairs, VA Wilmington Health Care locations and Sussex County VA Clinic page; news release "VA Wilmington Health Care System receives funding for continued infrastructure improvements," July 20, 2026. va.gov
• Delaware Public Media, "Dept. of Veterans Affairs Sussex County clinic changes locations," September 11, 2017.
• Road distances and drive times: OpenStreetMap routing (OSRM), Lewes and Rehoboth Beach to Dover Air Force Base and to Georgetown, checked September 29, 2026.
• Delaware Public Media, "Sussex County cancels two subdivision hearings, pauses further hearings after passing of SB23," July 21, 2026; Spotlight Delaware, "Get Involved: Sussex to discuss SB23," September 27, 2026.