Indiana Military Service Deduction Explained
Learn how Indiana's military service deduction reduces state adjusted gross income for active members, retirees, and surviving spouses.
The Indiana military service deduction is a state-level tax benefit designed to lower the Indiana adjusted gross income for qualified individuals. This deduction is available on the state income tax return for those who have served or are currently serving in the U.S. Armed Forces, providing a reduction in the amount of income subject to Indiana state tax.
Determining Your Eligibility
Eligibility for Indiana’s military tax deductions extends across different service statuses, each with specific criteria. The state provides benefits for those currently serving, those who have completed their service, and their families.
Active Duty, Reserve, and National Guard Members
Individuals currently serving on active duty in any branch of the U.S. Armed Forces, or as a member of a reserve component or the Indiana National Guard, are eligible for a deduction. This applies to military service income included on their federal adjusted gross income.
Retired Military Members
Those who receive military retirement pay are also eligible for a tax benefit. To qualify, an individual must receive payments from a military retirement plan and report this income on their federal tax return.
Surviving Spouses
A surviving spouse of a deceased military member may qualify for a deduction on military survivor’s benefits. The benefits received must be included in the surviving spouse’s federal adjusted gross income to be deductible on the Indiana state return.
Residency
These deductions apply to Indiana residents. However, non-residents or part-year residents who earn military income from Indiana sources may also claim a deduction, depending on their residency status and the source of income.
Calculating the Deduction Amount
The calculation method for the deduction differs based on the type of military income received. It is important to distinguish between pay for ongoing service and benefits received after service has concluded.
Deduction for Active, Reserve, and Guard Pay
Beginning with the 2024 tax year, Indiana exempts from state income tax all military pay received by a resident service member on active duty. Pay received by resident members of the National Guard or reserves is also fully exempt.
Deduction for Retirement or Survivor Benefits
A separate deduction is available for military retirement pay and survivor’s benefits. Indiana allows a 100% deduction for these types of income, meaning the entire amount reported on the federal return can be subtracted from your Indiana adjusted gross income.
How to Claim the Deduction
To claim the deduction, you must report it on your Indiana state tax return. The deduction is claimed on Schedule 2: “Deductions,” which is filed with Form IT-40 for full-year residents. The specific line used on the schedule depends on the type of military income.
The deduction for active duty military pay is claimed on Line 7 of Schedule 2. Other military-related income, such as National Guard and reserve pay, military retirement pay, and survivor’s benefits, is claimed on Line 11 under “Other Deductions.” This line requires a specific three-digit code to identify the type of income being deducted.
You do not need to submit military documents with your return, but you should keep records such as your military W-2 or Form 1099-R. These documents serve as proof of your eligibility and the amount claimed.