Saturday, November 19, 2022

2022 Military State by State Tax Guide

This post is just an overview. Also, many states update their information at the last minute, so some of this information might be out of date at the time of posting. Use this info as a starting point with hints, and double check with your state.

I will start with some general information, and then continue with state-by-state details. I have another book that is specifically for military called The Short Cheap Tax Book for the Military. It goes into a lot more detail on how state residency works for members and their spouses, as well as how to handle income from multiple states and other weird situations.

States with changes from the last post: LA, NM, IA, WI, NE, UT, VA, SC

Military Spouses Residency Relief Act (MSRRA)

Most states have begun to treat this in a similar manner to each other. In general, the spouse of a service member has two choices for state of residency: the state they are stationed in, or the military member's state of residency. In order to claim the military members state, they must have established a domicile in that state at some time before moving to the current state (the requirement for establishing domicile was eliminated starting in 2018, so, going forward, the spouse can take the military member’s state without ever having lived there at all). For those qualified to make the election to claim the military members state, it is important to weigh the benefits properly, for example, a spouse who works in SC married to a military resident of MI might assume that since MI does not tax the military member that they should choose this state. This would be wrong because MI will tax the non-military income of the spouse. SC is far more generous to the spouse of a service member stationed in SC. Expert assistance may be required making this determination. It can also be difficult to get the current state to stop withholding from the spouse’s wages. Each state Dept of Revenue has different procedures for handling this.

Again, starting in 2018, the spouse does NOT have to maintain the same state of residency as the service member. Many states have not incorporated this into their instructions, and it is likely that many state employees will not be aware of this. This is Federal LAW, and states do not have the option of ignoring it. As a spouse, be prepared to fight for your exemption and take action to maintain residency in the state you desire. I highly recommend registering to vote in your state of residence.

Some states are very liberal about this and some are harder, but it is hard to deny that as long as the military member and their spouse reside in the same state, the spouse can claim residency in the military member’s state and the income from jobs, businesses, investments etc. of the spouse are not taxed in the state they are stationed in and is instead taxed in the military member’s state. If you live and/or work across the border in a state that the military member is not stationed in, the MSRRA generally would not apply, though some states, like South Carolina, will still allow you to use it.

Residency:

A military member normally retains residency in the state they resided in when they joined the military unless action is taken to change this. The state on the W-2 form received from DFAS can generally be relied upon as to the state of residence of the military member (if it’s wrong get it corrected ASAP). The states in which a service member is stationed will not tax the member’s military income unless they are residents. They will tax any income earned from other employment or business activities conducted in the state by the member and their spouses (subject to the MSRRA discussed above.)

The discussions below about individual states apply specifically to the military member’s active-duty income and not income from side jobs or their spouse’s income.

Filing Requirements:

Not having to file discussed below assumes there is no withholding from the given state. A member may file even if not required and should do so if they have withholding from the given state so they can get the money back. If a member would not be required to file except for the existence of withholding, they should adjust their state withholding through MyPay so no taxes are withheld from that state. They may also consider stopping withholding even if they are required to file, for states that do not tax their income (MI for example.) Many people do not file required tax returns when there is no refund or balance due. This could result in a letter from the state requesting a return but rarely any penalties – but there can be!

Death Benefits:

Many states exclude death benefits and military pay for service members killed in a combat zone or while on active duty. The specifics are not discussed here. Survivors of service members killed on active duty can obtain assistance for this from CACO personnel (A CACO representative should be assigned to you automatically if you are the survivor of a military member who dies on active duty.) 

Taxation of Military Pensions:

I have tried to include information on this for each state, but it is even more likely to be out of date or incorrect. This information is just a starting point.

Military Bonuses:

Six states, as far as I can tell, have various bonuses for serving in the military or serving in a combat zone. Most of these are separate from a tax return. I have not had a ton of experience with them, so I have provided links where I can find them and will let you figure them out. If I haven’t provided a link, a quick google search normally turns them up. Most of these are one-time only bonuses, but some, like Minnesota’s, is every month in a combat zone. The six states are: MA, MN, OH, NH, SD and WV.

States with Bold names either require a tax return or other document to be filed by military residents, or a tax return should be prepared to determine if any refundable benefits are available from that state. 

Alabama:

Alabama treats military residents the same as all other residents.

Alabama does not tax military retirement.

 

Alaska:

Alaska does not have an income tax.

Alaska Permanent Funds Dividends are taxable on the Federal Return.

 

Arizona:

Arizona does not tax active-duty military pay and does not require filing if the only AZ source income is active duty pay.

Arizona does not tax Reserve or National Guard Pay.

Arizona taxes military retirement but allows a subtraction of $2,500 from it. If both spouses receive military retirement, they each get $2,500.

 

Arkansas:

Beginning in 2014, Arkansas no longer taxes active-duty military pay.

A tax return is still required.

Arkansas does not tax military pensions.

 

California:

California does not tax military pay of CA residents stationed outside of the state of CA.

They do tax military income of their residents when stationed in CA.

They also treat military spouses generously, similar to SC. Form 540NR is used to account for this. You write “MPA” to the left of column A for non-resident military income and enter the military income in column B but exclude it from column E.

California has recently sent letters to military members stationed out of the state saying a tax return should have been filed. These are wrong and the back side of the letter has an easy place to respond and get them off your back.

 

Colorado:

Beginning in 2016, CO will not tax active military income of military members with a home of record of Colorado IF they were a Colorado resident who subsequently changed residency to a different state AND changed back to CO in 2016 or later.

Otherwise, Colorado taxes military residents the same as other residents unless the member was stationed outside the US for >305 days in the year. 

Colorado taxes military retirement, but let’s you subtract the first $20,000 if you are under 65, and the first $24,000 if you are over 65.

 

Connecticut:

Connecticut allows resident military personnel stationed outside of CT to be treated as non-residents for tax purposes.

This can be confusing, but the point is that they are still a resident for other purposes, just not treated that way for tax purposes.

In order to be treated as a non-resident they must meet all three of the following requirements:

1) Not maintain a permanent place of abode in CT for the entire year (a parent’s house is not a permanent place of abode.)

2) Maintain a permanent place of abode outside of CT for the entire year. 3) Spend no more than 30 days in CT for any reason during the year.

If they meet these requirements they can file as a non-resident and exclude any military wages from gross income and need not file unless they have other CT source income.

CT does not tax military retirement of residents.

If a service member dies in a combat zone, or as a result of injuries sustained in a combat zone, all taxes are forgiven for that year. If the date they entered that combat zone for that period extends into a prior year, those taxes are also forgiven (essentially, if you enter a combat zone, don’t leave, and are killed, every tax year that made up a part of that combat zone time is tax free to CT.)

 

Delaware:

DE taxes military residents the same as all other residents.

DE taxes military retirement but does have a small exclusion that increases when you reach age 60.

 

Washington DC:

DC taxes resident military personnel the same as all other residents.

DC taxes military retirement pay but does have a small exclusion.

 

Florida:

Florida does not have an income tax.

 

Georgia:

GA taxes military residents the same as all other residents however Reserves or National Guard called to active duty for more than 90 days may be able to take a credit against their individual income tax based on their income from the National Guard or Reserves.

GA taxes military retirement but has a generous deduction that kicks in at age 62 or when totally and permanently disabled.

 

Hawaii:

Hawaii taxes military residents the same as all other residents except that they do not tax the first $6076 of reserve pay or HI national guard pay.

Hawaii does not tax military retirement

Excluding a spouse’s income from HI taxes will generally require a paper filed return with proof attached.

 

Idaho:

ID residents stationed in ID pay taxes on all military income; however, if the member was on active duty >120 days and stationed outside of Idaho they can exclude any military income earned while stationed outside of ID.

If they are stationed outside of Idaho for the entire year they do not need to file an ID tax return, however…

Idaho has a Grocery Credit that a military member is eligible for that is refundable so it is possible to get a refund from Idaho even though there was no tax withheld.

This makes Idaho one of the States that a military member should file even when not required to. 

ID taxes military retirement but has a small exclusion available once you reach 65 year’s old (62 if disabled).

 

Illinois:

IL does not tax military pay; however, the member must file a tax return if they file a Federal return.

Military members with children who get Federal Earned Income Credit may get up to 20% of the Federal amount even if they have no taxes due to IL.

It is generally best to file separately if one spouse is a resident subject to tax and the other is not, since a joint return requires both spouses to file as residents.

IL does not tax military retirement.

 

Indiana:

Indiana taxes military income but allows a deduction of the first $5000 of military income for the taxpayer and/or the spouse ($10000 for military couple.)

If a military member changes state of residency to another state they must submit the DD Form 2058 with the tax return for the year they changed state of residency.

IN taxes military retirement but has a subtraction amount to reduce the amount subject to tax.

In the year of discharge, both the military pay deduction and the retirement deduction may be used if both types of pay are received (the deductions cannot exceed the amount of pay received for each type of income).

IN has a local tax which applies if the service member is in IN as of January 1st of the tax year. If the member is stationed outside of IN, they do not pay local taxes.

A military spouse who is exempt from taxes due to the Military Spouses Residency Relief Act is also exempt from local taxes, even if working in IN.

 

Iowa:

IA does not tax military income and military income is not used in determining filing requirements (if the only significant sources of income are military income, a tax return is not required.)

Starting in 2014, Iowa no longer taxes military retirement.

 

Kansas:

Kansas taxes military income but allows a deduction for recruitment, sign-up and retention bonuses paid that are included in Federal taxable income (if the bonus was tax free to federal do not deduct it from KS. Kansas starts with Federal AGI so it is already excluded.)

The subtraction is made on Adjustments line A21.

KS does not tax military retirement pay.

 

Kentucky:

KY does not tax military income and does not require a tax return if the only KY source income is military pay.

KY taxes military retirement but has a very large exclusion available.

 

Louisiana:

Louisiana requires a tax return from military personnel the same as any other resident…however…

LA gives an exclusion of up to $50000 of military pay if the person has been on active duty outside of Louisiana for at least 120 days during the tax year. You must attach orders to the return.

The subtraction is taken as a Schedule E subtraction, Code 10E, by entering military pay up to $50000 on the schedule.

LA does not tax military retirement.

 

Maine:

Maine allows resident military personnel stationed outside of ME to be treated as non-residents for tax purposes.

This can be confusing but the point is that they are still a resident, just not treated that way for tax purposes.

In order to be treated as a non-resident they must meet all three of the following requirements:

1) Not maintain a permanent place of abode in ME for the entire year (a parents house is not a permanent place of abode.)

2) Maintain a permanent place of abode outside of ME for the entire year.

3) Spend no more than 30 days in ME for any reason during the year.

If the taxpayer meets these requirements they can file as a non-resident and exclude any military wages from gross income and need not file unless they have other ME source income.

Maine calls this the General Safe Harbor Rule. 

ME does not tax military retirement of the service member who earned it.

ME does tax military retirement received by former spouses or any other person who did not engage in the military service that earned the retirement. This is most common in cases of divorce.

 

Maryland:

Maryland taxes military residents just like other residents; however, they allow a subtraction for up to $15000 of military pay earned outside of the U.S. (Military Overseas Income.)

The deduction phases out dollar for dollar as ALL military income goes above $15000 and there is no exclusion if the total military income exceeds $30000.

The subtraction is taken on Form 502SU and the Military Overseas Income Worksheet is used to calculate the deduction.

Military members are also subject to local income taxes.

MD taxes military retirement but has a small exclusion which can be larger depending on age, disability status and spouse’s disability.

 

Massachusetts:

There are no special tax benefits for military, however…

The Massachusetts Dept of Veterans Affairs will give a onetime payment of $500 to any resident after they served at least 6 months active duty in the military. They also have a $1000 benefit for personnel who serve in Iraq or Afghanistan. Check their website for details.

MA does not tax military retirement.

 

Michigan:

Michigan requires military members to file a tax return; however, they subtract active duty pay from income (Schedule 1, Line 11).

Military members with children who receive Earned Income Credit on their Federal return may collect 6% of the federal amount, even if they pay no taxes to MI. (This was 20% for 2011 and prior years.)

MI does not tax military retirement pay.

 

Minnesota:

Minnesota subtracts Active Duty Military pay from income of MN residents.

If Gross Income on Federal return other than military is less than $10000, no MN return is required.

Minnesota pays $120 per month a military resident spends in a combat zone. This is paid separately from the tax return and is claimed on Minnesota form M99. Check their website for the form.

MN does not tax military retirement pay.

 

Mississippi:

Mississippi taxes military residents the same as other residents except that they do not tax National Guard and Reserve pay up to $15000.

MS does not tax military retirement pay.

 

Missouri:

MO allows resident military personnel stationed outside of MO to be treated as non-residents for tax purposes.

This can be confusing, but the point is that they are still a resident, just not treated that way for tax purposes.

In order to be treated as a non-resident they must meet all three of the following requirements:

1) Not maintain a permanent place of abode in MO for the entire year (a parent's house is not a permanent place of abode.)

2) Maintain a permanent place of abode outside of MO for the entire year.

3) Spend no more than 30 days in MO for any reason during the year.

If they meet these requirements they can file as a non-resident and exclude any military wages from gross income and need not file unless they have other MO source income.

If your spouse works but claims MO as your state of residency through the MSRRA their income is taxable to MO and they must file a tax return if they earn more than $1200.

MO has been a pain in the you know what on this exclusion lately.

As of 2014, Missouri exempts 75% of military retirement income from tax and starting in 2016 all military retirement income will be tax exempt.

 

Montana

Montana requires military residents to file a tax return but exempts active military pay from taxation on Schedule 2, Line 8.

Verification of active duty status must be attached to the return.

Montana taxes military retirement pay.

 

Nebraska:

Nebraska taxes military residents just like other residents.

Nebraska stopped taxing military retirement in 2022 

 

Nevada:

Nevada does not have an income tax.

 

New Hampshire:

NH does not have an income tax but they do tax interest and dividends. Generally, these would need to exceed $2400 for an individual and $4800 for a couple.

NH will pay a service member $100 if they earned the Global War on Terrorism Expeditionary Medal or Afghanistan Campaign, or Iraq Campaign Medal; and who was honorably discharged. Some conflicting information on expiration, but check it out here:

https://www.nh.gov/nhveterans/benefits/bonuses.htm

 

New Jersey:

Update: In 2020, NJ provided conflicting instructions on if military housing and housing paid for with allowances counts as maintaining a permanent place of abode outside NJ. The website says it counts, but the instruction book for military says it doesn’t. The law hasn’t changed, so I continue to count it, especially since the idea that it doesn’t count is stupid.

NJ allows resident military personnel stationed outside of NJ to be treated as non-residents for tax purposes.

 

This can be confusing, but the point is that they are still a resident, just not treated that way for tax purposes.

In order to be treated as a non-resident they must meet all three of the following requirements:

1) Not maintain a permanent place of abode in NJ for the entire year (a parent's house is not a permanent place of abode.)

2) Maintain a permanent place of abode outside of NJ for the entire year.

3) Spend no more than 30 days in NJ for any reason during the year.

If they meet these requirements they can file as a non-resident and exclude any military wages from gross income and need not file unless they have other NJ source income. (NJ does not consider barracks maintaining a permanent place of abode outside NJ – see the update above for more details ion what they consider a permanent place of abode – it gets confusing and NJ has epically messed this up.)

New Jersey just passed a $3,000 exemption for honorably discharged Veterans which applies to tax years 2016 and beyond.

NJ does not tax military retirement pay.

 

New Mexico:

New Mexico does not tax active-duty military pay however; NM residents are required to file a NM return if they were required to file a Federal return.

NM does tax military retirement pay, but, starting in 2022 you can exclude $10,000 and this number goes up to $20,000 in 2023 and $30,000 for 2024 through at least 2026.

 

New York:

NY allows resident military personnel stationed outside of NY to be treated as non-residents for tax purposes.

This can be confusing, but the point is that they are still a resident, just not treated that way for tax purposes.

In order to be treated as a non-resident they must meet all three of the following requirements:

1) Not maintain a permanent place of abode in NY for the entire year (a parent’s house is not a permanent place of abode.)

2) Maintain a permanent place of abode outside of NY for the entire year.

3) Spend no more than 30 days in NY for any reason during the year.

If they meet these requirements they can file as a non-resident and exclude any military wages from gross income and need not file unless they have other NY source income.

NY specifically excludes barracks as an abode outside of NY for the purpose of this rule.

Also, if a NY return is required to be filed to get back state taxes withheld and this exemption results in zero income (as it usually does) the return may have to be mailed in vice electronically filed.

NY does not tax military retirement pay.

 

North Carolina:

NC taxes military residents the same as other residents.

NC taxes military retirement pay but does offer a small deduction from it.

NC also had a lawsuit many years ago that caused some military retirement to be exempt from taxation. It is increasingly unlikely that this will apply to most people.

 

North Dakota:

ND taxes military residents the same as other residents, however…

National Guard and reserve members called to active duty can exclude their active duty pay form ND income.

ND taxes military retirement pay.

 

Ohio:

Ohio does not tax military pay of OH residents stationed outside of the state of OH. This applies to all local and school taxes as well, though some will fight you on it. The law is very clear on this.

They do tax military income of their residents when stationed in OH.

Ohio does not tax military retirement pay.

OH will give you up to $1500 for service ($500 for any service, $1000 for certain countries and $1500 for combat zones). Details here:

https://veteransbonus.ohio.gov/odvs_web/  

 

Oklahoma:

Oklahoma allows military members to exclude active duty pay.

This exclusion is accomplished using Schedule 511-C.

Military members are required to file an OK tax return if they were required to file a federal return.

OK stopped taxing military retirement starting in 2022.

 

Oregon:

Oregon allows a subtraction of all military pay earned while stationed outside of OR and up to $6000 earned while stationed in Oregon (Subtraction Code 319).

OR also allows military residents to be treated as non-residence if they spent less than 31 days in OR, did not have an abode in OR and had a permanent abode outside OR the entire year.

OR has weird rules for military retirement, but many people should not pay taxes on it.

 

Pennsylvania:

Pennsylvania does not tax Active Duty Military Income of residents stationed outside of PA and does not require a tax return; however, they do require the service member to mail or fax a copy of their orders stationing them outside of PA and their W-2.

If filing a tax return a copy of the orders must be included when mailing the return or sent separately to the address below:

PA DEPT OF REVENUE

NO PAYMENT OR NO REFUND

2 REVENUE PLACE

HARRISBURG PA 17129-0002 

They may also be faxed to: (717) 772-4193

PA does not tax military retirement pay.

 

Rhode Island:

Rhode Island taxes military residents the same as other residents.

RI stopped taxing military retirement starting in 2022.

 

South Carolina:

SC taxes military residents just like regular residents except that it does not tax reservist drill pay.

SC is very generous to the spouses of military (residents of another state) in that they allow you to exclude the active-duty income of the non-resident military member from the calculation of what percentage of deductions to allocate to the spouse. This generally results in 100% of the family’s deductions against only the spouses SC income. It is very difficult to get tax software to handle this correctly. Line 1 of the SCNR should have no active-duty military income in the Federal column. This can also apply to an active-duty person with a side job.

SC stopped taxing military retirement in 2022. Prior to this there was an ever increasing deduction amount that was subject to earned income limits and varied based on age.

 

South Dakota:

SD does not have an income tax.

South Dakota will give a resident $500 for active service after 9/11/2001. Details here:

http://vetaffairs.sd.gov/benefits/State/Veterans%20Bonus.aspx (Link #21)

 

Tennessee:

TN does not have an income tax but they do tax interest and dividends. Generally, these would need to exceed $1250 for an individual and $2500 for a couple.

 

Texas:

Texas does not have an income tax.

 

Utah:

Utah taxes resident service members the same as other residents.

UT does not tax military retirment.

 

Vermont:

Vermont does not tax military pay of VT residents stationed outside of the state of VT.

They do tax military income of their residents when stationed in VT. Military pay is subtracted on line 32.

A tax return is not required if the only income is military pay while stationed outside VT. 

VT taxes military retirement pay, but allows a small exclusion for lower income taxpayers.

 

Virginia:

Virginia taxes military residents just like other residents except that they give a subtraction of basic military pay of up to $15000.

The subtraction phases out dollar for dollar as income goes from $15000 to $30000 and is completely gone at $30000 of income. (If a military member made less than $15000, it would all be subtracted. If they made $20000, they get to subtract $10000.)

The subtraction code is 38.

VA taxes military retirement pay but allows an exclusion of $20,000 in 2022 which increases slowly to $40,000 in 2025.

If a spouse in VA is using the MSRRA to claim a state other than VA, and needs to get withheld taxes back, VA uses a separate form from their regular tax forms to claim it. Last time I used it the form had to be mailed in.

VA has hassled nonresident military stationed in the state in the past for not filing tax returns. They haven’t done it lately, but don’t assume a letter from VA is correct if you are a resident of another state.

VA has an exclusion for military retirement for taxpayers age 55 and older. It is $10,000 in 2022 and increases by another $10,000 each following year until the exclusion reaches $40,000.

 

Washington:

Washington does not have an income tax.

 

West Virginia:

West Virginia taxes military residents unless they spent less than 30 days in WV.

If they spent less than 30 days in WV they file as a non-resident and exclude all military income.

WV does not tax military income of reserves or national guard called to active duty by Executive Order of the President.

Starting in 2017, WV does not tax military retirement pay.

West Virginia gives $600 for service in the Afghanistan Combat Zone and $400 for service outside. Details here:

https://veterans.wv.gov/programs/Pages/default.aspx (Link #22)

 

Wisconsin:

Wisconsin allows a subtraction for all military active duty pay.

Rent paid by the military member in a state other than WI is allowed to be used for the School Property Tax Credit (not military housing.)

If a military member is stationed outside the United States, they may take a credit of up to $300 for pay received while stationed outside the U.S.

Wisconsin does not tax military retirement.

 

Wyoming:

WY does not have an income tax.

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