Is my military income taxable to Arkansas?

Whether your military income is taxable to Arkansas depends on your state of residence (Home of Record) and whether you are filing as an Arkansas resident or nonresident.

Arkansas Residents

If Arkansas is your Home of Record, you are generally required to file an Arkansas resident return and report all income, even if you are stationed outside Arkansas.

However, Arkansas provides a 100% exemption for active-duty military pay and allowances received by members of the U.S. Armed Forces. This exemption applies to tax years beginning on or after January 1, 2014.

Active-duty military compensation includes pay received by members of:

• Army
• Navy
• Air Force
• Marine Corps
• Coast Guard
• National Guard
• Reserve components serving on active duty

Although the income is exempt from Arkansas tax, you must still file an Arkansas return if you otherwise have a filing requirement and claim the exclusion.

How to Exclude Active-Duty Military Pay on an Arkansas Resident Return

1. Go to State.
2. Select Edit Arkansas Resident Return.
3. Choose Subtractions From Income.
4. Select Military Income Exclusion.
5. Enter the amount of active-duty military income included on your federal return.
6. Continue through the interview and save the Arkansas return.

Arkansas Nonresidents

If Arkansas is not your Home of Record and you are stationed in Arkansas under military orders, Arkansas does not tax your active-duty military compensation.

You generally do not need to file an Arkansas return unless:

• You have Arkansas-source income other than military pay, such as rental income, business income, or other taxable Arkansas income; or
• Arkansas income tax was withheld from your military pay and you need to file to claim a refund.

How to Exclude Military Pay on an Arkansas Nonresident Return

If you need to file a nonresident return, you can remove the military income from Arkansas taxation by following these steps:

1. Go to State.
2. Select Edit Arkansas Nonresident Return.
3. Choose Subtractions From Income.
4. Select Military Income Exclusion.
5. Enter the amount of active-duty military pay included on your federal return.
6. Continue through the Arkansas interview and save the return.

Married Couples With Different Residency States

If one spouse is an Arkansas resident and the other spouse is not, separate Arkansas returns are generally required.

In TaxSlayer:

1. Complete and file the federal return.
2. Wait until the federal return has been accepted.
3. Prepare and file the Arkansas return for the Arkansas-resident spouse.
4. The nonresident spouse must create a separate account and file a separate Arkansas return if required.

Military Spouse Considerations

Military spouses may qualify for relief under the Military Spouses Residency Relief Act (MSRRA). When the requirements are met, a qualifying military spouse may be exempt from Arkansas tax on wages earned in Arkansas while accompanying a servicemember stationed in the state.

Keep in mind that income exempt from Arkansas tax under the MSRRA may still be taxable by the spouse's state of legal residence.

Key Takeaway

• Arkansas residents: Active-duty military pay is reported but fully exempt from Arkansas income tax.
• Nonresidents: Active-duty military pay is generally not taxable to Arkansas.
• Military spouses: May qualify for an Arkansas exemption under the MSRRA if all eligibility requirements are met.
• If Arkansas tax was withheld from otherwise exempt military income, filing an Arkansas return may be necessary to claim a refund.