Military Pay
Resident - As of 2006 Arizona no longer taxes military income. This income must be manually subtracted from the Arizona resident return by selecting:
- Subtractions From Federal AGI
- Active Duty Military/Reserve/National Guard Pay - Enter the military pay as a positive number
Nonresident - If the taxpayer is a nonresident of Arizona stationed in Arizona whose only source of income is active duty military pay, they are not required to file an Arizona return.
One spouse is a resident of Arizona 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 Arizona resident, and an Arizona resident return filed MFS for the taxpayer.
- Federal MFS return for the spouse, and an Arizona nonresident return for the spouse. (The federal return won't be filed, only the Arizona return.)
To change the Arizona resident return filing status to MFS, from the Arizona Resident Menu select:
- Personal Information
- Filing Status - Select Married Filing Separately.
- Do you wish to repull income and deductions for MFS allocation? - Select YES.
- Whom are you filing return for? - Select Taxpayer or Spouse and make any necessary adjustments to income for the resident spouse.
Spouse Income - Military Spouses Residency Relief Act (MSRRA)
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.
In order to be eligible for the income exemption under the MSRRA in Arizona, the following conditions must be met by the military spouse/employee:
- The active duty military member is present in Arizona in compliance with military orders.
- The spouse is in Arizona solely to be with the active duty military member.
- The spouse maintains residence in another state, which is the same state of residence as the military member.
If the military spouse meets the eligibility requirements, they can avoid Arizona state tax from being withheld from their pay by providing their employer with (a) a current valid military identification, (b) a current Leave and Earnings Statement, and (c) Form WEC - Withholding Exemption Certificate.
To claim a refund of taxes withheld from the Arizona income in error, follow these steps from the Arizona nonresident state return menu:
- Personal Information
- Other Categories
- Qualify for Military Spouses Residency Relieve Act - Select YES, then exit back to main Arizona menu.
- Nonresident Income Allocation
- Wages, Salaries, Tips, etc
- Adjustments to State Wages (+/-) - Enter the spouse wages as a negative number.
Note: This is an article on reporting military pay and military spouse pay in the TaxSlayer Pro program. It is not intended as tax advice.
Additional Information:
Arizona DOR: Military Tax Filing
Arizona DOR: AZ Form 140NR Nonresident Personal Income Tax Booklet
Arizona DOR: AZ Form 140 Resident Personal Income Tax Booklet
Arizona DOR: Pub 705 Spouses of Active Duty Military Members