Income tax differs among states

| March 4, 2011 | 0 Comments

Capt. Harry Parent
Hawaii Army Tax Centers

Physical presence required to claim domicile for some no-tax states

For a list of states that fully or partially exclude military pay, visit, search for “Hawaii Army Tax Centers,” and click on “Notes.”

For a list of states that fully or partially exclude military pay, visit, search for “Hawaii Army Tax Centers,” and click on “Notes.”

SCHOFIELD BARRACKS — States tax income differently, particularly for service members.

The percentage of income taxed can vary greatly within a state, as well, based on types of income and other factors.

Hawaii has the highest state tax rate: 11 percent for a married couple making more than $400,000. Obviously, that high bracket will not affect many military personnel; hence, Hawaii tax rates could be lower than certain other states.

Seven states do not tax income at all, two states tax only interest and dividends above a certain amount, 14 states fully exclude military pay, seven states partially exclude military pay and 20 states fully tax military pay, subject to certain exceptions like time spent in combat zones.

States with no income tax don’t require a return to be filed, and those states that only tax interest and dividends only require a return to be filed if the interest is above a certain amount.

States that fully or partially exclude military pay may or may not require a return to be filed, so Soldiers should visit one of the Army Tax Centers, particularly if they had income tax withheld from the state on their Form W-2, Wage and Tax Statement.

Changing residency 

Before changing a state of domicile, Soldiers should consider the impact of falsely claiming a state as their state of domicile. States with no income tax, such as Alaska and Texas, are attractive to many service members since each state has a large military population. However, if a Soldier claims one of those states without having been physically present in the state and without having the intent to permanently reside in that state, he or she could face fines, penalties and civil or criminal charges from either their true domiciliary state or the state they falsely claim.

Soldiers should ensure they meet the physical presence and intent tests before making tax changes.

Also, Soldiers should consider other impacts that changing their residence will have, including vehicle and voter registration, the ability to gain in-state tuition rates at colleges and the amount they will pay in income taxes to their old state of domicile versus what they would pay to the new state of domicile.


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