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.

Monday, December 20, 2021