Whether your military pay is taxable to Arizona depends on your state of residency (domicile), where you're stationed, and whether you have other sources of income.
When You Don't Have to File an Arizona Return
You generally do not need to file an Arizona return if all of the following apply:
- You are an active-duty member of the U.S. Armed Forces.
- Your only income for the tax year is active-duty military pay.
- No Arizona income tax was withheld from your military pay.
If any of these conditions are not met, you may still need to file an Arizona return.
Arizona Residents Serving in the Military
If you were an Arizona resident when you entered military service, you generally remain an Arizona resident until you establish a new domicile elsewhere.
As an Arizona resident:
- You must report all income, regardless of where you are stationed.
- Military wages are included in your federal adjusted gross income (AGI).
- Arizona allows a subtraction for active-duty military pay included in federal AGI when filing Form 140.
How to Exclude Active-Duty Military Pay on an Arizona Resident Return
- Go to State.
- Select Edit Arizona Resident Return.
- Choose Subtractions from Income.
- Enter your Active Duty Military/Reserve/National Guard Pay.
- Save your entries.
The software will apply the Arizona subtraction for qualifying military income.
Arizona Nonresidents Stationed in Arizona
If you are a nonresident of Arizona but are stationed in Arizona on military orders:
- Your military pay is not subject to Arizona income tax.
- You only need to report other income earned from Arizona sources.
- Use Form 140NR, Nonresident Personal Income Tax Return, if you have Arizona-source income that must be reported.
When a Nonresident May Not Need to File
If:
- You are an active-duty service member,
- Your only income is military pay, and
- No Arizona tax was withheld,
then you are generally not required to file an Arizona return.
What If Arizona Tax Was Withheld in Error?
Sometimes Arizona withholding is reported on a military member's Form W-2 even though the income is exempt from Arizona tax.
If Arizona tax was withheld in error, you should file an Arizona nonresident return to claim a refund of the withholding.
How to Remove Military Pay From Arizona Wages
- Go to Federal.
- Select Income.
- Choose My Forms.
- Open the servicemember's W-2.
- Edit the W-2 and remove the amount shown in Box 16 (State Wages).
- Leave the Arizona withholding amount in Box 17 unchanged.
- Continue and save the changes.
This allows the Arizona nonresident return to calculate the refund of the incorrect withholding while excluding exempt military wages.
What If One Spouse Is an Arizona Resident and the Other Is Not?
If one spouse is an Arizona resident and the other spouse is a nonresident:
- File an Arizona nonresident return.
- Properly allocate income between spouses.
- Follow Arizona's community property rules when determining how income is reported.
Arizona has special filing requirements for mixed-residency military couples. For detailed guidance, refer to Arizona Individual Income Tax Ruling ITR-14-1.
Quick Summary
| Situation | Arizona Treatment |
|---|---|
| Arizona resident on active duty | Report military pay, then claim Arizona subtraction |
| Nonresident stationed in Arizona | Military pay is not taxable to Arizona |
| Only military pay and no Arizona withholding | Generally no Arizona filing requirement |
| Arizona tax withheld in error | File Form 140NR to claim a refund |
| Resident/nonresident spouses | File using nonresident rules and allocate income appropriately |
For most service members, the key factor is residency. Arizona residents can subtract qualifying active-duty pay from income, while nonresidents stationed in Arizona generally do not owe Arizona tax on their military wages.