Does Military Pay State Taxes? What You Need to Know

State taxation of military pay varies significantly across jurisdictions. While federal income tax guidelines are consistent, state income tax obligations depend heavily on individual circumstances and state-specific laws. Understanding these responsibilities is crucial for military personnel and their families.

Determining Your Taxing State

A central concept in military state taxation is “domicile,” which differs from physical residency. Domicile refers to your legal home, the place you intend to return to indefinitely, regardless of where military orders send you. This state generally retains the authority to tax a service member’s military income, even if they are physically stationed elsewhere.

The Servicemembers Civil Relief Act (SCRA) is a federal law allowing service members to maintain their original state of domicile for tax purposes. This means a military member generally does not lose or acquire a new domicile simply by being present or absent from a state due to military orders. The SCRA prevents service members from being forced to establish a new tax residency solely because of military assignments.

Establishing or changing domicile involves demonstrating a clear intent to make a particular state your permanent home. Factors states consider include voter registration, driver’s license, vehicle registration, property ownership, and where you pay state income or property taxes. To change domicile, you must physically move to a new location with the intent to establish a permanent home and abandon your old domicile. Service members should maintain records supporting their claimed state of domicile.

State-Specific Tax Treatment of Military Pay

Once a service member’s state of domicile is determined, understanding how that state treats military pay for tax purposes is the next step. States vary widely in their approach to taxing military income. Some states do not impose a state income tax, meaning military pay is not subject to state income tax in those jurisdictions.

Other states may fully exempt military pay from state income tax, regardless of rank or length of service. Some states offer partial exemptions, where only a portion of military pay is excluded, or the exemption applies only under specific conditions. Finally, some states fully tax military pay, treating it like any other income.

Service members should verify the specific laws of their state of domicile, as tax laws can change. State tax department websites are reliable sources for up-to-date information. Even if a state exempts military income, service members may still be required to file a state tax return. Excluding military income often requires completing specific forms or deductions.

State Tax Implications for Military Spouses

Military spouses often face unique state tax situations due to frequent relocations. The Military Spouses Residency Relief Act (MSRRA) addresses these challenges, working with the SCRA. MSRRA allows eligible military spouses to retain their state of domicile for tax purposes, even when moving to a different state solely to accompany their service member spouse on military orders.

Income earned by a military spouse from wages or self-employment in the new duty station state may not be subject to that state’s income tax. Instead, the spouse typically pays income tax to their state of domicile, if that state has an income tax. For MSRRA to apply, the spouse must reside in a state different from their domicile, be in the new state solely to live with the service member, and the service member must be present in that state due to military orders.

The MSRRA allows military spouses to choose their service member’s state of residence for tax purposes. The Veterans Auto and Education Improvement Act of 2022 expanded these options, allowing spouses to choose their own state of legal residency, the service member’s state of domicile, or the service member’s permanent duty station. Spouses can provide documentation, such as military orders, to employers to ensure proper state tax withholding.

Specific Types of Military Income and State Taxes

Beyond basic pay, various other types of military income and benefits have specific state tax treatments. Combat Zone Exclusion (CZE) pay is exempt from federal income tax, and many states follow this exemption. This means CZE pay is often not subject to state income tax. This exclusion applies to all military pay for enlisted members and warrant officers in a designated combat zone, and to a limited amount for commissioned officers.

Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS) are non-taxable for federal income tax purposes. These allowances, intended for housing and food costs, are also exempt from state income taxes. This non-taxable status applies whether the benefit is provided in kind or as a monetary allowance.

Re-enlistment bonuses and other special pays are considered taxable income at the federal level, and states generally follow this treatment unless specific state laws provide an exemption. If a re-enlistment bonus is earned while serving in a combat zone, it may be excluded from federal and potentially state income tax, depending on state law. Payments are subject to automatic withholding for federal and state taxes.

Veterans’ benefits, such as disability compensation from the Department of Veterans Affairs (VA) and GI Bill education benefits, are not subject to federal or state income taxes. This includes disability compensation, pensions for wartime veterans with limited income, grants for specialized homes or vehicles due to service-connected disabilities, and educational benefits covering tuition and housing. Survivors’ benefits, like Dependency and Indemnity Compensation (DIC), are also tax-free.