According to New Jersey Tax Bulletin GIT-7, "For Tax Year 2021 and after, combat pay is not taxable in New Jersey. The law also exempts service people from paying New Jersey Income Tax on their wages if they are being hospitalized for an injury from a combat zone. Do not include amounts received as combat zone compensation when reporting your gross income on a New Jersey Income Tax return."
What if I am a New Jersey resident?
If you are a resident of New Jersey, prior to tax year 2021, all of your income is taxable to the state. File a NJ-1040 Form if your total New Jersey income, including military pay, is more than $10,000 ($20,000 for married filing joint). If you are a resident of New Jersey in the military, you may be considered a nonresident for tax purposes if the following conditions apply. If you qualify, file a nonresident return instead of a resident return.
- You did not maintain a permanent home inside New Jersey
- You did maintain a permanent home outside of New Jersey
- You did not spend more than 30 days in New Jersey during the year
A permanent home is one that you paid for either out-of-pocket or by forfeiting your quarters allowance. It does not include barracks, government dormitories, or ships quarters.
If you qualify to file as a nonresident for income tax purposes and your active duty pay is being taxed by New Jersey, file Form DD-2058-1, State Income Tax Exemption Test Certificate with your payroll office to stop the state tax form being withheld.
What if I'm a nonresident of New Jersey?
If you are a nonresident of New Jersey, your New Jersey military pay is not taxable to New Jersey. File a NJ-1040NR Form. However, any other income you earned while in New Jersey is taxable.
To enter the subtraction for military pay, follow these steps in the program:
- State Section
- New Jersey Nonresident Return
- Income Subject to Tax
- Enter amount in box labeled "Resident Military Income treated as Non Resident Income for NJ purposes OR Pennsylvania residents as a result of the Reciprocal Personal Income Tax Agreement (please refer to the instructions for more information)"
- Press Continue to save
What if my spouse is a resident of New Jersey but I'm not?
If one spouse is a resident of New Jersey and the other is not, you can file separate New Jersey returns. The return should be calculated as if filing married filing separate federal returns.
New Jersey does not have Part-Year returns. You are required to file either a resident return, a nonresident return, or both. See the New Jersey instructions to determine what kind of return(s) to file if you moved into or out of New Jersey during the tax year.
US military pensions and survivor's benefits are exempt from New Jersey taxes.
To enter the subtraction within the program, follow these steps:
- State Return
- NJ Resident Return
- Income Subject to Tax
- Enter Military Pension, Survivor's Benefit Payments, or other Qualifying Income Exempt from NJ Tax
- Enter the excluded amount as a negative number