Military Pay
Resident - If the taxpayer is a resident of New Jersey they are subject to New Jersey income tax on all income regardless of the source. This includes active duty military pay.
As of tax year 2021, combat pay is not taxable in New Jersey. If the combat pay is included in the New Jersey state wages, it can be excluded from the New Jersey resident income by removing the combat portion of the serviceman's wages from Box 16 of the military W-2. The amount to reduce the state wages should be the amount listed in Box 12 Code Q.
Nonresident - If the taxpayer is a nonresident of New Jersey stationed in New Jersey whose only source of income is active duty military pay, they are not required to file a New Jersey return.
One spouse is a resident of New Jersey and the other is not - For income tax purposes, a servicemember’s spouse may elect to use the same state of residence as the servicemember. If a servicemember is not a New Jersey resident, and is instead a resident of another state, his or her spouse can elect to also be a resident of that state and not a resident of New Jersey.
Generally, New Jersey does not permit a filing status change from the federal return. If the taxpayer and spouse select married filing joint on the federal return, they are required to file married filing joint on the New Jersey return. However, there is an exception for taxpayers who are not both residents of New Jersey. The resident spouse should file a MFS resident NJ return. Currently the married filing separate option is not supported in the New Jersey resident return in the ProWeb version of the software.
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 New Jersey , the following conditions must be met by the military spouse/employee:
- The principal reason for moving to this state was the transfer of the military spouse/civil union partner; and
- They maintain a domicile in another state; and
- They intend to leave New Jersey when their military spouse/civil union partner is transferred or leaves the service.
If the military spouse meets the eligibility requirements, they can avoid New Jersey state tax from being withheld from their pay by providing their employer with Form NJ-165 Employee’s Certificate of Nonresidence In New Jersey.
Getting taxes withheld in error refunded
To claim a refund of taxes withheld from the New Jersey income in error, from the New Jersey nonresident return menu select:
- Income Subject to Tax
- Resident Military Income treated as Non Resident Income for NJ purposes OR Pennsylvania residents as a result of the Reciprocal Personal Income Tax Agreement - Enter the spouse wages as a positive number.
Removing nontaxable combat pay from NJ wages
On Form W-2, nontaxable combat pay is reported in Box 12 with code Q. It is not included in Box 1 wages, but if it is included in New Jersey wages in Box 16 it can be deducted from taxable wages in the New Jersey return. To remove combat pay reported in Box 16 from New Jersey taxable wages, from the New Jersey resident return menu select:
- Income Subject to Tax
- Amount of Third Party Sick pay that is not taxable to NJ - While the description is for sick pay, this entry field can also be used to deduct combat pay. Before entering an amount here, be sure New Jersey taxable wages are overstated by the amount of the combat pay.
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:
New Jersey Military Personnel & Veterans
New Jersey Military Personnel and Families
New Jersey Nonmilitary Spouses/Civil Union Partners of Military Personnel