The tax system is a labyrinth and contains regulations that can be quite difficult for the everyday taxpayer to sift through. For those serving in the military, it can be even harder. Military personnel and their families face a bevy of state-specific rules and federal regulations that make filing their taxes unique, particularly as families navigate the intricacies of active duty versus reserve duty and other related situations.
Understanding ‘Home of Record’
One of the biggest challenges of military state taxes is understanding the IRS’s definition of “home.” For military personnel, “home of record” isn’t just where a soldier resides; it’s a defining term established when a military member first enlists. This carries significant weight when tax season rolls around.
“Home of record” is defined as the location where a military member claims to maintain a permanent legal residence, determined by factors such as voter registration, filing and paying the state’s income taxes, having a driver’s license, and registering vehicles and other indicators of intent. It determines everything from travel allowances to tax liabilities. That means regardless of where duty calls—whether it’s another state or another country—the state recorded as the home of record can continue to tax a soldier’s military income.
Military Taxes Vary by State
Thirteen states don’t tax active-duty military pay, a list that expanded when North Dakota joined the ranks in March 2023, after Gov. Doug Burgum (R) signed a bill exempting state taxes on active duty, National Guard, and Reserve members. These states represent a growing trend in recognizing the unique sacrifices made by military personnel.
Those aren’t the only states that offer tax relief, however. For example, some states only exempt part of military pay or provide tax credits and deductions instead of a total exemption. States such as Maryland and Virginia offer partial exemptions for military pay based on income thresholds.
When it comes to retirement income, a greater number of states have generous programs. Twenty-five states don’t tax military retirement pay, and another nine states offer partial tax relief on retirement income.
Tax implications also often extend to spouses. The Veterans Benefits and Transition Act of 2018 designates that military spouses can claim the home state of the service member even if the spouse didn’t live in that state previously. For example, Major Alison Brown’s “home of record” is Texas, which has no state income tax. Her spouse, John Brown, has never resided in Texas. John can now claim Texas as his state of residence for tax purposes even though he never lived there.
Getting Help With Filing
Military personnel and their families can access free tax preparation services through the Volunteer Income Tax Assistance program. The program, launched in 1969, offers tax assistance to those who qualify.
With a focus on military personnel and their families, VITA volunteers receive specialized training in how the military tax system works. They’re better equipped than most tax pros to handle the nuances of state and federal laws pertaining to military families. VITA helped prepare more than one million tax returns nationwide in 2022, generating about $1.8 billion in refunds.
Military families also can turn to tax centers established on many military installations. These tax centers, often overseen by the Judge Advocate General’s Corps, are staffed by certified tax preparers who provide free tax services to active-duty, reserve, and retired military personnel. For those seeking virtual assistance, Military OneSource, a Department of Defense-funded program, provides free online tax preparation and filing to service members and their families.
Additionally, the IRS provides a dedicated resource page for military members. This page provides detailed guidelines, tax tips, and other relevant information curated explicitly for military families.
Why is all this help so crucial? The answer is simple—getting taxes right is not just a legal obligation but also affects mental well-being and financial health. Properly filed taxes can result in substantial savings, credits, and refunds that a member of the military may be entitled to, some specific to military families. Conversely, errors in tax filing can lead to penalties, audits, or missed opportunities for savings.
This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Author Information
Lee T. Reams Sr. is the co-founder of CountingWorks Inc and TaxBuzz. He is an expert on individual tax-related topics with 50 years of experience and manages his own tax practice with over 600 clients.
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