Deductions for Military Personnel

Feb. 20, 2015 - TaxTalk Blog

Military personnel, especially those serving in combat zones, face some special tax situations and are entitled to certain tax deductions.

Military Service Deduction: Active, Reserve, and Retirement Pay
You are eligible for a deduction if the income you report on your income tax return includes active or reserve military pay.

If you are retired from the military or are the surviving spouse of a person who was in the military, you may be able for this deduction if:

  • You were at least 60 years of age by the end of the year;
  • You were receiving military retirement or survivor’s benefits during the year; and
  • The total benefits received as retirement income were reported on your federal return.

This deduction is equal to the actual amount of military income received (i.e., military pay, retirement pay, and survivor's benefits) or $5,000, whichever is less. If both you and your spouse received military income, you may each claim the deduction up to a maximum of $10,000.

For more information about this deduction, view Information Bulletin #6 and #27.

National Guard and Reserve Component Members Deduction
The National Guard and Reserve Component Members Deduction is available to certain members of the reserve components of the Army, Navy, Air Force, Coast Guard, Marine Corps, and Merchant Marine. It also is available to certain members of the Indiana Army National Guard and Indiana Air National Guard.

A deduction is available for the income received as a result of service on involuntary orders during the period the eligible member was deployed and mobilized for full-time service or during the period the eligible member's Indiana National Guard unit was federalized.

See instructions in the IT-40 Instruction booklet for more information.

Nonresident Military Spouse Earned Income Deduction
An Indiana nonresident military spouse may be eligible for a deduction if:

  • Indiana is not the military service member’s state of domicile as reported on the service member’s Form DD-2058;
  • The military service member and spouse are domiciliaries of the same state;
  • The military service member is in Indiana on military orders;
  • The military service member’s spouse is in Indiana in order to live with the service member and resides at the same address; and
  • The Indiana-source earned income is included on Indiana Schedule A on line 1B, 2B and/or 7B.

To determine if you are eligible to claim this deduction, complete Schedule IN-2058SP (Nonresident Military Spouse Earned Income Deduction). This deduction may be claimed if you are filing Form IT-40PNR (for full-year and part-year Indiana nonresidents).

Please contact us if you have any questions or concerns.