Military Tax Filing
Beginning with 2006, Arizona does not tax active duty military pay. Members of the U.S. Armed Forces may subtract the amount of pay received for active duty military service, including pay received for active service in a combat zone or an area given the treatment of a combat zone, to the extent included in Arizona gross income and subject to Arizona tax. A full year Arizona resident may take this subtraction on Form 140 only. A full year resident may not take this subtraction if filing Form 140A or 140EZ. A part-year resident military member may take this subtraction on Form 140PY.
Do I need to file?
For Arizona filing purposes, full-year residents figure their gross income the same way they do for federal income tax filing purposes. You must file if you meet the Arizona filing requirements unless all the following apply to you:
- You are an active duty member of the United States armed forces.
- Your only income for the taxable year is compensation received for active duty military service.
- There was no Arizona tax withheld from your active duty military pay.
If Arizona tax was withheld from your active duty military pay, you must file an Arizona income tax return to claim any refund you may be due from that withholding.
You must also file an Arizona income tax return if you have any other income besides compensation received for active duty military pay and you meet the filing requirements.
Tax Exclusions
Residents should exclude income as Arizona law does not tax, which includes:
- active duty military pay;
- pay received for active service as a reservist for a National Guard member;
- benefits, annuities and pensions as retired or retainer pay of the uniformed services of the United States (tax year 2021 and forward).
Spouses
Arizona residents who have spouses in the military (including non-residents), and who want to file married filing separately, can file Form 140. The nonresident military spouse will file Form 140NR to show that spouse’s Arizona source of income and his or her community property share of the resident spouse’s income.
Employee Withholding Exemption Certificate - Request to have no Arizona income tax withheld from spouse's wages. If you are married to an active duty military member and you earn wages in Arizona, those wages are exempt from Arizona withholding if:
1. Your spouse is a member of the armed forces and is in Arizona in compliance with military orders;
2. You are in Arizona solely to be with your spouse;
AND
3. You maintain a domicile in another state, which is the same state that is the domicile of your spouse.
For more guidance in determining Arizona residency, please review Arizona ITP 92-1.
Subtraction of Active Service Compensation for National Guard Members and Reservists
For purposes of Arizona gross income, A.R.S. § 43-1022(11) provides a subtraction for active service compensation received by members of the Armed Forces, United States Reserves, and National Guard.
Arizona Income Tax Ruling ITR 12-2 (Dec. 10, 2012) states, “Federal law governs the National Guard and the United States Reserves. Therefore, the department will look to federal law to determine what constitutes active service as a member of the National Guard or the United States Reserves.”
While this is an accurate statement in context, it does not address other qualifying active service compensation that members may subtract as active service income. As ADOR Publication 704 explains, the subtraction includes all pay received by a National Guard member or reservist for services performed in each respective capacity, and includes compensation received by Arizona National Guardsmen activated in a state capacity.
ITR 12-2 will be reviewed and updated as needed, as part of ADOR’s continuing efforts to provide accurate and reliable guidance to taxpayers.
Native American Veteran Income Tax Settlement
Beginning January 1, 2006, Arizona no longer taxed active duty military pay and therefore discontinued state income tax withholding on this type of income.
The Native American Veterans Income Tax Settlement Fund was established on July 1, 2016 to refund Arizona income tax erroneously withheld from Native Americans who served in the military while claiming tribal land as their domicile from September 1, 1993 through December 31, 2005. During the 2017 Arizona legislative session, House Bill 2158 was introduced to amend the original legislation when it was discovered the Department of Defense may have withheld Arizona income tax prior to September 1, 1993.
Refunds may be claimed for years 1977 through 2005 on a first-come, first-served basis until the fund is exhausted.
Native American veterans who had Arizona income tax withheld from their active duty military pay while domiciled on their reservation can claim the refund. If the veteran is deceased the surviving spouse or personal representative may make a claim. If anyone other than the surviving spouse or personal representative (e.g., child of the veteran) makes a claim they must show the value of the decedent's estate was less than $30,000.
The Department of Veterans’ Service may not accept claims after December 31, 2022. The Department of Revenue will not grant refunds after June 30, 2023.
For more detailed information, see the Native American Veteran Income Tax Settle page.
Unclaimed Property
The Unclaimed Property program searches for members of the U.S. military who have unclaimed funds in their names from when they were stationed in Arizona.
The agency has identified thousands of military personnel with last known Arizona addresses from Camp Navajo Army Base, Fort Huachuca Army Base, Luke Air Force Base, Tucson’s Davis-Monthan Air Force Base, Yuma Proving Ground Army Base, and Marine Corps Air Station (MCAS) Yuma.
Additional Resources
ITR 14-1 - Filing a Joint Tax Return When a Resident Spouse is Married to a Part-Year Resident or Nonresident
ITR 93-20 - Income Reporting Requirements of Resident and Nonresident Spouses Who File Separate Arizona Individual Income Tax Returns
Pub 704 - Taxpayer in Military
Pub 705 - Spouse of Active Duty Military Members
Pub 706 - Native American Veterans Income Tax Settlement Fund