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.
Generally, to establish legal residence in a state, you must demonstrate that you intend to reside and intend to remain a resident of that state. However, each state has its own set of rules for what things help to support your intent to legally reside in a state. These things 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.
Example: Connecticut follows the federal tax rules, while Arkansas excludes only the first $9,000 of military compensation from gross income.
Spouses of military members are now taxed much the same as members of the military due to the enactment of the Military Spouses Residency Relief Act in 2009 (MSRRA).
Under this act, a military spouse is allowed to maintain their original state of residence even though they move to the sate where their spouse is stationed if all of the following requirements are met:
The spouse accompanies the military member to a duty station state outside the home state to comply with military orders;
The spouse is in the duty station state solely to be with the military member; and
The spouse is domiciled in the same home state as the military member.
If these 3 requirements are met, the income earned by the non-military spouse while in the duty station state is not subject to taxation in that state, although such income may be subject to taxation in the spouse's home state. Similarly, the spouse's property is not subject to taxation in the duty station state.
Note: MSRRA, which is effective in 2009, is an expansion of the Servicemembers Civil Relief Act (SCRA), which exempted servicemembers' military income and property from taxation in multiple states.
Thus, the military income earned by the servicemember and the non-military income of the spouse are exempt from state taxation in the duty station state if the three MSRRA requirements are met. Both spouses are subject to tax (income and property) in their home state.
Prior to the MSRRA, income earned by the spouse and non-military income earned by the servicemember were subject to taxation in the duty station state. However, the MSRRA eliminates the taxation in the duty station state of income earned by the servicemember's spouse if the 3 requirements above are met.
To learn more about how your state handles military income, visit your state’s Department of Revenue Web site.