State income tax requirements for members of the military are based on your state of legal residence (which may or may not be the same as your home of record), not on the state where you earned the military wages.
Example: Let’s suppose that you were born and raised in Littleton, New Hampshire, and you graduated from the University of Vermont. After graduation, you enlisted in the military in Burlington, Vermont, and you are now stationed at Fort Drum, New York. Because you enlisted in Vermont, the military generally considers Vermont to be your state of legal residence. However, if you demonstrated that you were a legal resident of New Hampshire at the time you enlisted, then New Hampshire would be your state of legal residence.
To establish legal residence in a state, you must demonstrate that you intend to reside there, and visit there from time to time. Things that help support your intent to legally reside in a state include:
Getting (or keeping) your driver’s license there
Registering your vehicle(s) there
Paying state taxes (such as income or property taxes) there
Registering to vote there
Members of the military receive many different types of pay and allowances. For federal income tax purposes, some types of pay and compensation (such as active duty pay, hardship duty pay, and bonuses) are included in gross income, while other compensation (such as moving allowances, combat zone pay, and disability pay) is not. For more information, see Publication 3: Armed Forces’ Tax Guide.
While some states follow the federal tax rules regarding the amount and types of compensation excluded from gross income, other states don’t. Some states exclude all or a portion of your military wages from gross income if you didn’t live in your state of legal residence at all during the year. To avoid paying taxes on your military wages in some states, you might also need to provide an affidavit of nonresidency to prove that you didn’t reside in the state during the year.
Example: Connecticut follows the federal tax rules, while Arkansas excludes only the first $9,000 of military enlisted compensation ($6,000 for officers) from gross income.
If you and your spouse file a joint return and your spouse isn’t in the military, your spouse’s wages are usually taxable in the state in which you’re stationed. However, you might be able to exclude all or a portion of your military wages if your state of legal residence isn’t the state in which you’re stationed.
If you are a resident of one of the 7 states that has no state income tax — Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming — then your military income won’t be taxed. If you’re a resident of New Hampshire or Tennessee, you won’t pay tax on your military income either because only dividend and interest income is taxed in those states.
To learn more about how your state handles military income, visit your state’s Department of Revenue Web site. To get there, go to http://www.taxcut.com/taxcut/state_irsinfo.htm and click on your state.