Questions & Answers

What is the National Guard and Reserve Component Members Deduction?

Regular military income from being in the reserves and Indiana National Guard is eligible for the Military Service Deduction. Do not claim a deduction for this kind of income here.

This deduction is available for qualified military income received during the period you were mobilized and deployed for full-time service, or your Indiana National Guard unit is federalized.

Mobilization includes assembling and organizing personnel and material for active duty military forces, activating the Reserve Component (including federalizing the National Guard), extending terms of service, surging and mobilizing the industrial base and training bases, and bringing the Armed Forces of the United States to a state of readiness for war or other national emergency.

Servicemembers serving on full time orders in an Active Guard and Reserve Program (AGR) are not considered mobilized for purposes of claiming their income as qualified military income.

Deployment is the relocation of forces and material to desired operational areas. Deployment encompasses all activities from origin or home station through destination, specifically including intra-continental U.S., inter-theater, and intra-theater movement legs, staging, and holding areas.

If you meet the qualifications listed below, you will want to deduct that qualified military income here (unlike the Military Service Deduction, there is no ceiling on the amount of this kind of income which is eligible for a deduction).

Who is eligible?
You must be a member of the reserve components of one of the following:

  • Army
  • Navy
  • Air Force
  • Coast Guard
  • Marine Corps
  • Merchant Marine
Or, a member of one of the following:
  • Indiana Army National Guard; or
  • Indiana Air National Guard.
What is eligible to be deducted?
If you are eligible (based on the above requirements), your deduction is the qualified military income received during the period you were deployed and mobilized for full time service, or during the period your Indiana National Guard unit was federalized.

Military income received due to service 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 this deduction.

What is qualified military income?
Qualified military income is military wages paid to a member of a reserve component of the armed forces or the Indiana National Guard for the period during the member's full-time service in a reserve component of the armed forces or the period when Indiana National Guard unit was federalized.

Note. You cannot claim both this deduction and the Military Service Deduction based on the same income. See the following example.

Example. Brandon is a member of the Indiana National Guard.
  • From January through Oct. 15, Brandon earned $6,000 from the guard.
  • His unit was federalized on Oct. 16. He earned $7,000 from that point through Dec. 1.
  • His unit was assigned to a combat zone on Dec. 2, and he earned $3,000 from then until the end of the year.
  • Brandon's military W-2 shows $13,000 in Box 1, Wages, tips, other compensation (the combat zone income is not included in Box 1 because it is not taxable).
Brandon is eligible for both Indiana military deductions. First, he will claim the $5,000 maximum military service deduction based on the $6,000 income earned through Oct. 15. Then, he will claim the National Guard and reserve components deduction of $7,000 (full amount of income earned after his unit was federalized). Note: He will not deduct the $3,000 income earned while stationed in a combat zone because it was not taxed to begin with.

Military withholding statements must be attached to the tax return when claiming this deduction.

The department may request copies of your military orders to help determine eligibility.

Get Information Bulletin #27 at www.in.gov/dor/reference/files/ib27.pdf for more information concerning this deduction.

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