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Is my military income taxable to Indiana?

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 of 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 for federal tax purposes, then a married filing joint Indiana return is required. If filing a married filing separate 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 also 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 the 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. 

DEDUCTIONS AVAILABLE TO INDIANA RESIDENTS FOR MILITARY SERVICE

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:

  1. State Section
  2. Indiana Resident Return - Edit
  3. Subtractions from Income
  4. Military Service Deduction
  5. Enter the amount allowed
  6. Save

National Guard and Reserve Component Members:

If qualified, you may be able to deduct the qualified military income you received:

  • during the period you were deployed and mobilized for full time service
  • during the period your Indiana Guard unit was federalized

Who is Eligible?

You must be a member of the reserve components of:

  • the Army/Navy/Air Force/Coast Guard
  • the Marine Corps
  • the Merchant Marine

or, a member of:

  • the Indiana Army National Guard
  • the Indiana Air National Guard

You cannot claim both the National Guard and Reserve Component Members Deduction and the Military Service Deduction based on the same income.

To claim the deduction, follow the steps below:

  1. State Section
  2. Indiana Resident Return
  3. Subtractions from Income
  4. Other Deductions
  5. National Guard and Reserve Component Members Deduction(from drop down menu)
  6. Enter the qualified amount
  7. Save

Military Retirement Pay and/or Survivor's Benefits received by an Indiana resident allows a deduction in the amount of $6,250 and the age requirement has been eliminated. To enter in program select

  1. State Section
  2. Indiana Resident Return
  3. Subtractions from Income
  4. Other Deductions
  5. Military Retirement Income and/or Survivor's Benefits Deduction(from drop down menu)
  6. Enter the qualified amount
  7. Save

For further information, see

Information for Military Personnel

Military Spouse Relief Act

Indiana IT-40PNR Booklet

 

 

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