February 9, 2005 |
2005-R-0123 | |
STATES THAT EXEMPT MILITARY PAY FROM STATE INCOME TAX | ||
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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