Does California Tax Active Duty Military Pay?
As a serving member of the United States Armed Forces, you know that your compensation is based on your rank, duty status, and length of service. However, many military personnel are curious to know whether their active duty pay is subject to California state income tax. The answer is not a straightforward one, and it may vary depending on your individual circumstances.
California State Tax Laws
California is one of the few states in the United States that levies a state income tax on its residents. In fact, California has the highest state income tax in the country, with top marginal rates reaching as high as 13.3%. However, the good news for active duty military personnel is that California exempts a significant portion of your military pay from state taxation.
Federal Exclusion
Under federal law (26 U.S.C. § 112), all active duty military pay received by a member of the Armed Forces is exempt from federal income tax. This means that you do not have to pay federal taxes on your basic pay, special pays, and allowance for quarters (BAQ).
California Exemptions
California state tax law (California Revenue and Taxation Code § 17014) mirrors the federal exemption, exempting active duty military pay from state income tax. The exemption applies to the first $20,000 of your military pay, or the amount of your total income, whichever is lower.
Exceptions to Exemptions
While the bulk of your active duty military pay is exempt from both federal and California state tax, there are some exceptions to be aware of. These include:
• Special Pays: Certain types of special pays, such as hazardous duty pay, flight pay, and environmental hazard pay, are taxed as ordinary income.
• Allowances: Housing allowances, food allowances, and other types of subsistence allowances are taxed as ordinary income.
• Bonuses: Certain military bonuses, such as separation bonuses and re-enlistment bonuses, are subject to federal and state taxes.
• Interest: Interest earned on military pension plans and other investments may be subject to state taxes.
Tax Filing Requirements
As an active duty military personnel stationed in California, you are required to file a California state income tax return (Form 540) if your total income exceeds the exemptions mentioned earlier. You can claim the exemption on Form 540, Line 17, by entering "Military Pay Exclusion" and attaching a copy of your DD Form 214 (Certificate of Release or Discharge from Active Duty) or other documentary evidence of your military status.
Tax Implications for Military Spouses and Dependents
If you are a military spouse or dependent, your income from a civilian job or business may be subject to state taxes. However, under California law (California Family Code § 2206), military spouses and dependents are exempt from California state income tax on earnings from a civilian job while stationed in California.
Conclusion
In conclusion, as an active duty military personnel stationed in California, the majority of your pay is exempt from state income tax. However, it’s essential to understand the exceptions to these exemptions and tax filing requirements to ensure accurate reporting and minimize any tax liabilities. By familiarizing yourself with California state tax laws and regulations, you can better plan your financial affairs and make informed decisions about your military compensation.
