The income on line 1 of Form IT-40 may include active or reserve military pay. If it does, you will be able to take a deduction (regardless of your age).
If you are retired from the military or are the surviving spouse of a person who was in the military, you may be able to take this deduction. You will be eligible if:
- You received military retirement or survivor's benefits during the taxable year, and
- The benefits received as retirement income were reported on your federal return.
Your deduction will be the actual amount of military income received (i.e. military pay and/or survivor's benefits) or $5,000, whichever is less. If both you and your spouse received military income, you may each claim the deduction for a maximum of $10,000.
Important: If you served in the Indiana National Guard or the reserve component of the armed forces during the taxable year, you should review the instructions contained on Page 22 of the Indiana IT-40 Instructions.
Note: Military income earned while in a combat zone is not taxable on your Federal or State income tax returns. Since Indiana is not taxing this income, your combat zone income is not eligible for a deduction.
If you received a combination of military pay, retirement pay and/or survivor's benefits during the tax year, the total deduction cannot be greater than $5,000 per qualifying person. For example, if you earned $6,000 in military pay and $1,500 in retirement pay, you can deduct only $5,000 of your military income.