Military Pay
Resident - If the taxpayer is a resident of Alabama they are subject to Alabama income tax on all income regardless of the source. This includes Active Duty Military Pay no matter where it was earned.
Nonresident - If the taxpayer is a nonresident of Alabama stationed in Alabama whose only source of income is active duty military pay, they are not required to file an Alabama return.
One spouse is a resident of Alabama and the other is not - They can file separate state returns, one as a resident and the other as a nonresident. To accomplish this you'll need to prepare two tax returns:
- Federal MFJ return with the primary taxpayer being the Alabama resident, and an Alabama resident return filed MFS for the taxpayer.
- Federal MFS return for the spouse, and an Alabama nonresident return for the spouse. (The federal return won't be filed, only the Alabama return.)
To change the Alabama resident return filing status to MFS, from the Alabama State Menu select:
- Basic Information
- Change Filing Status from MFJ to MFS for State purposes only
- Do you want to change the state filing Status from MFJ to MFS? - Click Yes.
- MFS for State purposes only
- Select whom you are filing this MFS return for - Select Taxpayer.
- Do you want to automatically pull Other State Credit from Nonresident returns that have been completed? - Click Yes.
Spouse Income
The MSRRA allows military spouses who reside with their service member spouse stationed in a nonresident state on military orders to keep their resident state for tax purposes. This means if the spouse has income from the nonresident state, they are not required to pay taxes to the nonresident state but report this income on their resident state return.
To be eligible for the income exemption under the MSRRA in Alabama, the following conditions must be met by the military spouse/employee:
- The employee’s spouse is a military service member.
- The employee is NOT a military service member.
- The military service member spouse has a current military order assigning him or her to a military location in Alabama.
- The employee and military servicemember reside at the same address.
- The employee’s domicile state is a state other than Alabama.
- The employee’s and military service member’s domicile is the same.
- The employee is present in Alabama solely to be with the military service member spouse.
If the military spouse meets the eligibility requirements they can avoid Alabama state tax being withheld from their pay by providing their employer with (a) a current valid military identification, (b) a completed copy of DOD Form DD-2058 (reflecting the servicemember’s state of legal residence), and (c) a current Leave and Earnings Statement.
Note that if the spouse's Alabama employer withheld tax in error, the W-2 earnings will need to be removed from the Alabama nonresident return. From the Alabama Return menu select:
-
Basic Information
- Select the State of Which You Were a Legal Resident - Select the resident state.
- Did file a return with your legal resident state for 2022? - Answer Yes or No as appropriate.
- Click Continue to return to the Alabama Return menu.
- Income Subject To Tax
- Wages under the Military Spouse Residency Relief Act - Enter the W-2 earnings not taxable in Alabama.
Note: This is an article on reporting military pay and military spouse pay in TaxSlayer ProWeb. It is not intended as tax advice.
Additional Information:
Alabama DOR: Form 1040NR Booklet