Members of the Armed Forces of the United States are not excused or exempt from state or local income taxes except to the extent that either the Soldier's and Sailor's Civil Relief Act (SSCRA) or the law of the particular state or locality so provides. The Act provides that members of the Armed Forces who are legal residents of one state but who are living in another solely by reason of military orders, are not liable to the second state for income taxes on their service pay.

NOTE, however, the SSCRA does not exempt military retired pay, separate income of a spouse or other members of the service member's family, nor the income of service personnel derived from off-duty employment, investments, business, rents, bank deposits or other sources.

The Tax Reform Act of 1976 authorizes the Federal Government to withhold state taxes from active duty personnel whose “home” state requests such withholding. Military retired or retainer pay is not subject to mandatory withholding; however, if desired, state taxes can be withheld on a voluntary basis for all states with state income taxes. Most states which tax military income have executed mandatory withholding agreements with the U.S. Treasury.

Military personnel are required to obtain necessary forms, file returns and pay state taxes directly to the state tax authority. The Soldiers’ and Sailors’ Civil Relief Act reserves the right to tax a servicemember’s income to the state or legal residence or domicile, sometimes referred to as the “home” state. The Act protects the member from taxation by a state where residing by virtue of military orders, but of which such member is not a legal resident, except on business income or civilian employment within such state, including off-duty employment at nonappropriated fund activities such as clubs. Taxes on such off-duty income may be withheld and remitted to the host state. Each member is required to file a return to his or her state of domicile and to the state where residing when such off-duty income is earned.

Spouses and dependents of servicemembers are not covered by the Act and may occasionally be subject to income tax by two or more states. Information and advice concerning the application of the Act in individual cases should be obtained from the Legal Assistance office.

The income-taxing states are making a concerted effort to locate delinquent taxpayers and are imposing penalties on late returns. Computerization of Federal and state taxes has revealed many of these delinquent taxpayers. Additionally, most states have entered into agreements with the IRS for the exchange of tax data.

It should be noted that a legal “domicile” and the “home-of-record” as used within the Armed Forces are not always identical. The “home-of-record” is normally used to designate the place to which the member may be entitled to mileage reimbursement upon separation, and is not always the legal domicile. In determining its right to tax an individual, a state frequently looks to see whether the individual has claimed benefits based on domicile or has exercised his or her right to vote—a strong indication of domicile. Many states are now challenging any change of domicile and requiring proof of such changed domicile. The burden of proof is upon the member.

The following compilation of state tax information represents the best information available at time of publication. Some states were considering new tax legislation, so care should be exercised and questions should be resolved by checking with the state tax authority. This data should be considered as a general guide to state income tax requirements. The possible requirement for filing a declaration of estimated taxes has not been included. For specific information regarding your state, contact the legal assistance office or the state tax office for your state. For your convenience, a listing of the state tax authorities for the states having some form of income tax may be found below:

Most of this information has been provided by the Uniformed Services Almanac™.
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