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Military Service and Residency

Members of the military are usually taxed in their state of legal residence rather than in the state where they’re stationed.

You usually must prove you reside and intend to continue residing in a state to establish legal residence. However, each state has its own set of rules for proving your intent to legally reside in a state. These actions can help prove your residency:

  • Getting or keeping your driver's license
  • Registering your vehicle(s)
  • Paying state taxes, like income or property taxes
  • Registering to vote

Tax rules for military income

Members of the military receive many different types of pay and allowances. For federal tax purposes, some types of pay and compensation are included in gross income, while other compensation isn’t.

Pay and compensation included in gross income include:

  • Active-duty pay
  • Hardship-duty pay
  • Bonuses

Pay and compensation not included in gross income include:

  • Moving allowances
  • Combat-zone pay
  • Disability pay

If you'd like to learn more, see Publication 3: Armed Forces' Tax Guide at www.irs.gov.

While some states follow the federal tax rules regarding the amount and types of compensation excluded from gross income, other states don't.

Due to the Military Spouses Residency Relief Act in 2009 (MSRRA), spouses of military members are now taxed much the same as military members. Under this act, military spouses can maintain their original states of residence. This is true even though they move to states where their spouses are stationed. These requirements must be met:

  • The spouse accompanies the military member to a duty-station state outside the home state. The military member must be obeying military orders.
  • The spouse is in the duty-station state solely to be with the military member.
  • The spouse is a legal resident of the same home state as the military member.

If non-military spouses meet these three requirements, their earned income while in the duty-station state won't be taxed by that state. This applies even if such income might be subject to taxation in a spouse's home state. Similarly, a spouse's property isn’t subject to taxation in the duty-station state.

So, the military income earned by a service member and non-military income of a spouse are exempt from state taxation in the duty-station state. However, to apply, they must meet all three MSRRA requirements. Both spouses are subject to income and property taxes in their home state.

If you'd like to learn more, visit your state's tax office website.

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