Of the 41 states with a state income tax, 27 states fully exempt military retirement pay from state income taxes and 12 states partially exempt military retirement pay. In 2022, Delaware increased the pension exclusion for military pensioners under 60 to $12,500, and in 2024, Delaware expanded the definition of a United States military pension to include a pension received for an individual’s service in the commissioned corps of the National Oceanic and Atmospheric Administration and the commissioned corps of the Public Health Service and clarified that the armed forces of the United States includes the Space Force and Coast Guard. This Act phases in, over 3 years, an increased exemption for military pensions from state income taxation, regardless of age, which is currently $12,500, so that in taxable years beginning on or after January 1, 2029, the exemption will be $25,000 for all military pensioners.
Section 1 of this Act increases the burial benefit for individuals receiving a pension under the State Employees’ Pension Plan (Chapter 55 of Title 29 of the Delaware Code) from $7,000 to $10,000. The amount of this benefit has not been increased since 2001 (See 73 Del. Laws, c. 146, § 5). Section 1 of this Act directly increases the amount of the burial benefit for individuals receiving a pension under the State Employees’ Pension Plan and also increases the funeral benefits under additional pension plans because the amount of the benefits under the following pension plans is the same as the amount under § 5546 of Title 29: • The State Police Pension Plan, Chapter 83 of Title 11. • The Delaware County and Municipal Police and Firefighter Pension Plan, Chapter 88 of Title 11. • The early retirement option for state employees, Chapter 53 of Title 29. In addition, Section 1 of this Act increases the reasonable funeral expenses permitted in a wrongful death action under § 3724(d)(4) of Title 10 because the maximum for these damages is the amount under § 5546 of Title 29. Section 2 of this Act delays the effect of this Act until October 1, 2025, to provide time to implement this Act after the enactment of the fiscal year 2026 appropriations act containing the funding for this Act. This Act also makes technical corrections to conform existing law to the standards of the Delaware Legislative Drafting Manual.
Like House Bill No. 2, House Substitute No. 1 for HB 2 makes technical corrections to § 5546 of Title 29 and increases from $7,000 to $8,000, both of the following: • The amount of the burial benefit under the State Employees’ Pension Plan. • The amount paid for funeral expenses for a member of a volunteer fire company, volunteer fire company ladies auxiliary, or a volunteer ambulance and rescue company. HS 1 for HB 2 differs from HB 2 because it changes the effective date to October 1, 2026, and because the enactment of Senate Bill No. 28 (85 Del. Laws, c. 215) on September 9, 2025, included all of the following: • The technical revisions to § 6750 of Title 18 that were also included in Section 2 of HB 2. • The transfer of § 6750 of Title 18 to § 6701A of Title 18, which was also included in House Amendment No. 1 to HB 2. • The enactment of § 6701A of Title 18, which was also included in HA 1 to HB 2.
This bill increases Delaware's personal income tax exclusion for pension income from $12,500 to $25,000 annually. It directly affects Delaware residents who receive pension income, allowing them to exclude more of that income when calculating their state taxable income. The key provision doubles the amount of pension earnings that are exempt from state taxation. This change reduces the state tax burden for qualifying pensioners without altering other tax rates or brackets.
