What is the Military Service Deduction?

If income included in your federal adjusted gross income on your federal return includes active or reserve military pay received by you, you will be eligible to take a deduction (regardless of your age).

Also, if you are retired from the military or are the surviving spouse of a person who was in the military, and you included military retirement income on your federal tax return, then you may be eligible for this deduction if you meet the following requirements:
  • You were at least 60 years of age by December 31, 2014.
  • You were receiving military retirement or survivor's benefits in 2014.
  • The total benefits received as retirement income were reported on your federal return.

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

Important: If you served in the Indiana National Guard or the reserve component of the armed forces during 2014, please refer to the National Guard/Reserve deduction on this screen.

Note: Military income earned while in a combat zone is not taxable on your federal or state income tax returns. Since Indiana is not taxing this income, your combat zone income is not eligible for a deduction.

Example. Jim was on active duty the first month of the year. He was stationed in a combat zone the rest of the year. His military W-2 (W2) form shows regular military wage income of $950, and $19,000 income earned while being stationed in a combat zone. Only $950 of his income is taxed on his federal return; likewise, Indiana will only initially tax $950. Jim should claim a $950 military deduction (the lesser of the income being taxed [$950] or $5,000).

Note: If you received a combination of military pay, retirement pay and/or survivor's benefits during the tax year, the total deduction cannot be greater than $5,000 per qualifying person. For example, if you earned $6,000 in military pay and $1,500 in retirement pay, you can deduct only $5,000 of your military income.

For more information about this deduction see Income Tax Information Bulletins #6 and #27 at Indiana's Department of Revenue website.

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