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. 

What deductions are 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:

This deduction is available for qualified military income you received after:

• your Indiana National Guard unit is federalized OR
• your reserve component was mobilized and deployed for full-time service.

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:

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:

1. State Section
2. Indiana Resident Return
3. Subtractions from Income
4. Military Retirement Income and/or Survivor's Benefits Deduction
5. Enter the qualified amount
6. Save

Additional Information

• Information for Military Personnel
• Military Spouse Relief Act
• Indiana IT-40PNR Booklet