Questions & Answers

What is the Military Service Deduction?

The Military Service Deduction includes the National Guard and reserve component of the armed forces.

The scope of this deduction has changed. The military service deduction and the military retirement income and/or survivor's benefits deduction are now reported in two different places beginning with the 2018 tax year.

You (and/or your spouse, if married filing jointly and both qualify) will report your active, National Guard and/or reserve military service income deduction here.

You (and/or your spouse, if married filing jointly and both qualify) will report your Military Retirement Income and/or Survivor's Benefits Deduction as a separate deduction.

Your Indiana income may include military pay from active duty, National Guard, and/or the reserve component of the armed forces (reserve). If it does, you may be eligible to take this deduction.

The deduction will be the actual amount of your active duty, National Guard, and/or reserve military income or $5,000, whichever is less. If both you and your spouse received active, National Guard, and/or reserve military income, you may each claim the deduction for a maximum of $10,000 (up to $5,000 each).

Example 1. Louis earned $25,000 from active service in the Army. Brooklynn, his wife, earned $2,640 from the Indiana National Guard. Louis is eligible for the maximum $5,000 deduction; Brooklynn is eligible for a $2,640 deduction.

If you served in the reserve or the Indiana National Guard during the tax year, and you were deployed and mobilized for full- time service, or during the period your Indiana National Guard unit was federalized, then you may be eligible to claim the National Guard and Reserve Component Members Deduction.

Alec earned $1,504 from his service in the National Guard. His unit was federalized in September of the year; he earned $6,200 after being federalized. Alec is eligible to claim two deductions based on the income he earned. First, he will claim a $1,504 Military Service Deduction. Second, he will claim the full $6,200 income earned after his unit was federalized for the National Guard and Reserve Component Members Deduction.

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 3. 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 form shows the first month's regular military wage income of $1,250 in Box 1. Only $1,250 of his income is taxed on his federal (and Indiana) tax returns. Jim should claim a $1,250 military deduction (the lesser of the income being taxed [$1,250] or $5,000).

Example 4. Mikayla is a member of the National Guard. She earned $7,250 from service in the National Guard from Jan. 1 through Oct. 31. Her guard unit was federalized for full-time service on Nov. 1, and she earned an additional $4,800 through Dec. 31 of the year. Mikayla is eligible to claim both the Military Service Deduction and the National Guard and Reserve Component Members Deduction. First, she will claim the $5,000 maximum Military Service Deduction based on the $7,250 income earned through Oct. 31. Second, she will claim the National Guard and Reserve Components Deduction of $4,800 (full amount of income earned after her unit was federalized).

You must enclose your military W-2 form(s) if you are claiming this deduction.

For more information about this deduction see Income Tax Information Bulletin #27 at www.in.gov/dor/3650.htm.

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