Military taxes and residency
If you’re in the military, you’re probably taxed in your state of legal residence rather than in the state where you’re stationed. Filing taxes while deployed can depend on your state of residence as well.
To establish legal residence in a state, you usually must prove you live — and intend to continue living — there. 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 for filing military taxes:
- Getting or keeping your driver’s license
- Registering your vehicle(s)
- Paying state taxes, like income or property taxes
- Registering to vote
Military income tax rules
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
Pay and compensation not included in gross income include:
- Moving allowances
- Combat-zone pay
- Disability pay
To learn more, see Publication 3: Armed Forces’ Tax Guide at www.irs.gov.
Some states follow the federal tax rules regarding the amount and types of compensation excluded from gross income, while other states don’t.
Military tax returns for spouses during deployment
If you’re the spouse of a service member, you also might wonder about how to file taxes while your spouse is deployed. Good news — military spouses are now taxed much the same as military members.
This is due to the Military Spouses Residency Relief Act of 2009 (MSRRA). Under this act, military spouses can maintain their original states of residence or choose your service member spouse’s state of residence. This is true even if you move to a state where your spouse is stationed, as long as you meet these military residency requirements:
- You go with your military member spouse to a state outside your home state. Your spouse must be moving on military orders.
- You’re in the duty-station state only to be with the military member.
Additionally, the Veterans Benefits and Transition Act of 2018 (VBTA) allows the spouse of a military member to use their spouse’s state of residency beginning in 2018. This is the case even if the spouses did not share the same state residency prior to the deployment.
Ex: Major Hannah Jones is a legal resident of New Hampshire. Major Jones receives PCS orders relocating her to California. In 2018, Major Jones marries Carl Price who is a resident of Vermont. Carl relocates to live with Major Jones and takes a job in California. Under the VBTA, Carl may elect to treat New Hampshire as his state of residence even though he never lived there.
This makes filing taxes while deployed a bit simpler. If you meet these military residency requirements, your earned income while in the duty-station state won’t be taxed by that state. This applies even if the income might be subject to tax in your home state. Likewise, your property isn’t subject to tax in the duty-station state.
So, both the non-military income earned by you and the military income earned by your spouse are exempt from state tax in the duty-station state. This makes military tax filing much simpler overall. Both of you still have to pay income and property taxes in your home state.
To learn more, visit your state’s tax office website.
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