Military Service Deduction
The income on line 1 of Form IT-40 may include active or reserve military pay. If it does, you will be able 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, you may be able to take this deduction. You will be eligible if:
•You were at least 60 years of age by Dec. 31, of the tax year,
• You received military retirement or survivor’s benefits during the tax year, and
• The 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, you may each claim the deduction 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, see the National Guard and Reserve Component Members Deduction on page 22.
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 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).
- You must enclose your military W-2 form, retirement pay statement and/or survivor’s benefit statement with the tax return if you are claiming this deduction.
- 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 www.in.gov/dor/3650.htm.