Military Income
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MILITARY INCOME

In addition to this information, check the new exemptions for 2003:

military loans 40.63 death gratutity 40.64
military expenses 40.62 non-resident military

RESIDENCY:

Active-duty military service pay is taxable only by the state in which the armed forces service member is a legal resident, which is usually the state of residence at the time he/she enters the service. Income of Iowa residents in military service is taxable to the same extent as it is taxable for Federal purposes, even if the Iowa residents are stationed outside of Iowa or outside of the United States.

To make a change of residence, you must have physical presence in the new state as well as show intent to establish residency in that state. Intent can be shown by registering to vote, recording a last will and testament, purchasing a home for use as your principal residence, and complying with the income tax laws of the other state if the state has an income tax. Form DD 2058 must also be filed with the military payroll office. A combination of these actions is required to change your state of legal residency.

A spouse of an Iowa resident in the armed forces who was a resident of another state at the time of their marriage will generally not be considered an Iowa resident until he or she has lived in Iowa with the resident spouse.


EXEMPTION FROM TAX:

There is an income tax exemption for active duty pay received by a person in the National Guard or armed forces military reserve for service performed on or after January 1, 2003, pursuant to military orders for Operation Iraqi Freedom, Operation Noble Eagle, or Operation Enduring Freedom. The individual needs only to be called to active duty under the appropriate orders to qualify for the exemption of active duty pay. The individual does not have to be serving overseas to be eligible for the exemption, but can be serving in Iowa or elsewhere in the United States under the appropriate military orders and qualify for the exemption for active duty pay.

Note that if a person in the National Guard or military reserve was called to active duty pursuant to military orders for an operation or purpose other than the operations specified above, the active duty pay is not exempt from Iowa income tax. 40.61

Include all income on line 1 with other W-2, 1099, or W-G income. Qualifying military income is then deducted on line 24. If you file a paper return, attach a copy of your orders. If you file electronically, keep a copy of your orders with your tax records in case the department requests them at a later date.

EXTENSION INFORMATION:
Iowans in the armed forces who serve in an area designated as a qualified hazardous duty zone and/or combat zone
will be given additional time to:

  • file income tax returns
  • file appeals on tax matters
  • file claims for refunds for any type of tax administered by the department
  • file returns for taxes other than income tax
  • perform other acts such as making timely contributions to individual retirement accounts, and
  • make tax payments other than withholding payments. 39.12

Iowa follows the IRS qualifications with an exception. The IRS extension applies to combat zone personnel and support personnel deployed overseas. Iowa does not limit support to overseas service. Therefore, for example, a National Guard soldier from Iowa who is deployed to another state or country qualifies for the extension for Iowa income tax filing. 39.12

The additional time period for filing state returns and performing other acts is 180 days after the person leaves the combat zone or hazardous duty area, which is the same time period as allowed by Federal income tax law. To learn more, go to the IRS Web page for military extensions. 39.12


FORGIVENESS OF TAX:

Iowa income tax is forgiven if:

  • the deceased was killed in a combat zone, or
  • the taxpayer is missing in action and presumed dead, or
  • the deceased was killed outside the United States due to terrorist or military action while he/she was a military or civilian employee of the United States and
  • the person's federal income tax was forgiven

Single status: Iowa income tax is forgiven for the tax year in which the individual was killed or was missing and presumed dead and for the tax year prior to the year of death.

Married / year of death: If the deceased was married at the time of death, all tax is forgiven for the year of death if the filing status is joint or married filing separately on the combined return for that tax year.

Married / prior year: All tax is forgiven if the deceased was married at the time of death and a joint return or a married filing separate return was filed for the year prior to death. Please note that if the deceased had filed using the married filing separately on the combine return status, only the state income tax attributable to the deceased will be forgiven. Prior-year returns cannot be amended to change the filing status. 39.11


IRS Military Web Page:
The Internal Revenue Service specifies which combat zones qualify for special income tax considerations. This link will take you to the IRS Web page addressing military income tax.