According to the Indiana Instructions, "If you were an Indiana resident when you enlisted, you remain an Indiana resident no matter where you are stationed. You must report all your income to Indiana on Form IT-40. Please see instructions for Form IT-40."
If you are a resident of Indiana, file an Indiana resident return and report all your income, if your gross income exceeds your exemptions. Both military (except combat zone) and nonmilitary income should be reported on the return.
If filing a married filing joint return for federal tax purposes, then a married filing joint Indiana return is required. If filing married filing separately for federal tax purposes, then a married filing separate Indiana return is required.
If you are a resident of Indiana, stationed outside of Indiana, in the County Information of the State Return, select Out of State for where you lived and choose Out of State for where you worked.
If you are a nonresident of Indiana, stationed in Indiana, you are not required to file with Indiana unless you have non-military income from Indiana sources. A deduction for military pay is not required if the correct Home of Record is listed on the W-2.
If one spouse is a resident of Indiana and the other is not, file a nonresident Indiana return.
What deductions are available to Indiana taxpayers with military income?
Military Service Deduction:
If the income on line 1 of Form IT-40 includes active or reserve pay, you may be able to take the Military Service Deduction.
The deduction will be the lesser of $5,000 or the actual amount of military income received. If both you and your spouse received military income, the maximum amount is $10,000. To claim the deduction, follow the steps below:
- State Section
- Edit Indiana Resident state return
- Subtractions from Income
- Enter amount for box labeled "Enter the lesser of the actual amount of your active duty, National Guard, and/or reserve military income or $5,000 ($10,000 if both taxpayer and spouse have military income)"
National Guard and Reserve Component Members Deduction
- Starting with tax year 2023, regular military income for National Guard members and armed force reserve members can now be deducted in full.
Who is Eligible?
You must be a member of the reserve components of the
- Army;
- Navy;
- Air Force;
- Coast Guard;
- Marine Corps; or
- the Merchant Marine.
Or a member of
- the Indiana Army National Guard; or
- the Indiana Air National Guard.
You cannot claim both the National Guard and Reserve Component Members Deduction and the Military Service Deduction for the same income.
To claim the deduction, follow the steps below:
- State Section
- Indiana Resident Return
- Subtractions from Income
- Other Deductions
- National Guard and Reserve Component Members Deduction (from drop down menu)
- Enter the qualified amount
- Save
Military Retirement Pay and/or Survivor's Benefits:
Military Retirement Pay and/or Survivor's Benefits received by an Indiana resident allows a deduction in the amount equal to the entire amount of military retirement income and/or survivor’s benefits. To enter in program, follow the steps below:
- State Section
- Indiana Resident Return
- Subtractions from Income
- Enter amount in box labeled "Military Retirement and/or Survivor's Benefits Deduction - Add together your military retirement income and survivor’s benefits and enter here"