Topic:
TAX EXEMPTIONS; MILITARY PERSONNEL;
Location:
MILITARY; TAX EXEMPTIONS;

OLR Research Report


February 9, 2005

 

2005-R-0123

STATES THAT EXEMPT MILITARY PAY FROM STATE INCOME TAX

By: Steve DiLella, Legislative Fellow

You want to know if any states exempt military pay (not including retirement pay) from taxes. (OLR Report 2005-R-0131 addresses tax exemptions for military retirement pay.)

Of the 17 states that we randomly selected, only two exempt military pay income from taxes, exempting all compensation earned by servicemen, including guardsmen and reservists, for active duty service.

The other 15 states allow taxpayers to exclude a portion of their military income from adjusted gross income. Amounts excluded from gross income are not subject to tax. The most common exclusion is for combat zone pay. Connecticut grants this exclusion by following the federal rules, which exempt combat zone pay from federal tax. The basis for other exclusions varies widely from state to state and includes such factors as the serviceman's status (e.g., reservist); where he is located (e.g., overseas or out of state); and type of service (e.g., active-duty). Table 1 lists the 17 states, the exclusions they provide, and the eligibility criteria.

Table 1: Military Pay and Income Tax Exemptions

State (Statutory Cite)

Personnel Exempt

Type of Income Exempt

Amount of Exemption and Conditions

Arkansas (Ark. Code. Ann. 26-51-306)

All military personnel, including guardsmen and reservists

All military personnel, including guardsmen and reservists

Service pay and allowances

Combat zone pay

Up to $6,000

Follows federal rules (see NOTE)*

California (Cal. Revenue and Taxation Code 17142.5)

All military personnel, including guardsmen and reservists

Combat zone pay

Follows federal rules

(see NOTE)*

Connecticut (Department of Revenue at www.revenue.state.co.us)

All military personnel, including guardsmen and reservists

Combat zone pay

Follows federal rules

(see NOTE)*

Colorado (Colo. Rev. Stat. 39-22-103), (Colorado Department of Revenue at www.revenue.state.co.us)

All military personnel, including guardsmen and reservists, deployed abroad for active-duty service for 305 days or more

All military personnel, including guardsmen and reservists

Overseas military pay as well as other income**

Combat zone pay

No limit specified

Follows federal rules (see NOTE)*

Georgia (Ga. Code. Ann. 48-7-27-12)

Guardsmen and reservists

Combat zone pay

No limit specified

Iowa (Iowa Code 422.7.40)

Guardsmen and reservists performing active-duty service related to Operation Iraqi Freedom, Operation Noble Eagle, and Operation Enduring Freedom (serviceman does not have to be serving overseas to be eligible)

All military personnel, including guardsmen and reservists

Active-duty service pay

Combat zone pay

No limit specified

Follows federal rules (see NOTE)*

Maryland (Md. Code. Ann. Tax-General 10-207)

All military personnel, including guardsmen and reservists deployed overseas on active-duty service

Overseas military pay

First $15,000. If pay exceeds $15,000, the deduction is reduced dollar for dollar. No exclusions for income over $30,000

Michigan (Mich. Comp. Laws 206.30)

All military personnel, including guardsmen and reservists

Compensation received for services in the armed forces of the United States

No limit specified

Missouri (Mo. Rev. Stat. 143.991.1)

All military personnel, including guardsmen and reservists

Combat zone pay

Follows federal rules

(see NOTE)*

Montana (Mont. Code. Ann. 15-30-116(2))

Active-duty armed forces members, including guardsmen and reservists called into federal active duty

All military pay while on active duty

Full exemption (serviceman must have enlisted in Montana)

-Continued-

State (Statutory Cite)

Personnel Exempt

Type of Income Exempt

Amount of Exemption and Conditions

Nebraska (Neb. Rev. Stat. 77-27,123(1))

All military personnel, including guardsmen and reservists

Combat zone pay

Follows federal rules

(see NOTE)*

North Dakota (N.D. Cent. Code 57-38-01(k))

Military personnel, including guardsmen and reservists

Active duty armed forces members below a certain rank

Active-duty service pay or pay for attending periodic drill training as guardsman or reservist

Overseas pay

Up to $1,000

$300 per month

Pennsylvania (Pa. Cons. Stat. Ann 121.10.(c).8)

All military personnel, including guardsmen and reservists

Active-duty pay earned out-of-state

No limit specified

Vermont (Vt. Stat. Ann. Tit. 32.2.3.2 5823(2))

All full-time active-duty personnel

Guardsmen and reservists

Full-time active-duty pay earned outside the state

Training in the state

No limit specified

Up to $2,000 if federal adjusted gross income is less than $50,000

Virginia (Va. Code. Ann 58.1-322.21)

Guardsmen and reservists below a certain rank

All military personnel, including guardsmen and reservists

All military personnel, including guardsmen and reservists, on extended active duty for more than 90 days

Pay for active and inactive service

Combat zone pay

Basic Pay

Up to 39 calendar days or $3,000, whichever is less

Follows federal rules (see NOTE)*

First $15,000. If pay exceeds $15,000, the deduction is reduced dollar for dollar. No exclusions for income over $30,000

West Virginia (W.Va. Code 11-21-12e)

Guardsmen and reservists

Any military personnel, including guardsmen and reservists

Active-duty military pay received during “Operation Enduring Freedom”; or other domestic security operations being performed pursuant to presidential order

Combat zone pay

No limit specified

Follows federal rules (see NOTE)*

-Continued-

State (Statutory Cite)

Personnel Exempt

Type of Income Exempt

Amount of Exemption and Conditions

Wisconsin (Wis. Stat. 71.05(6)(b)34)

Guardsmen and reservists

Any military personnel, including guardsmen and reservists

Pay for federal active-duty service and special state service authorized by the Department of Defense

Combat zone pay

No limit specified

Follows federal rules (see NOTE)*

*NOTE: States that follow federal rules tax military pay to the same extent that it is taxable for federal income tax purposes. Under federal law, compensation that noncommissioned military personnel receive for active-duty service in a combat zone is not included in gross income and thus is exempt from tax. For commissioned officers, the exclusion is capped at the highest enlisted pay, plus $500 for hostile fire and imminent danger pay. A combat zone is an area designated as such by the President and includes an area designated by the federal government as a qualified hazardous zone (26 USC 112).

**Servicemen deployed overseas for 305 days are eligible to file as nonresidents. This exempts military pay as well as other income.

SD:ts