Federal tax law has some sweet (and well-deserved) breaks for military families. And, here are key provisions that can simplify things—and maybe save money—when it comes to state income taxes, too. Generally, your legal residence for determining where you vote, get your driver's license and pay your taxes is the state where you live. But the law allows servicemembers to maintain legal residence in one state even if they are stationed in another. Imagine the hassle if you had to change all those things every time you were transferred. That's the simplicity part.
SEE OUR COMPLETE GUIDE: Personal Finance Tips for Military Families
The savings part is that if your legal residence (also called domicile) is—or is changed to—a state that has no income tax, you can be shielded from the state levy even if you find yourself living in a high-tax state.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
A Pilot's Story
Lt. Eric Schwab, a 28-year-old Navy pilot, is now stationed in Kingsville, Tex., after a two-year deployment with the USS Enterprise. A native of Rhode Island, that’s where Schwab has filed state income taxes since he was commissioned in 2005, despite a training stint in Florida and several years being stationed in Virginia. "Since taxes in Virginia were higher than in Rhode Island, I didn't want to change my domicile while I was there," says Schwab. When in Florida, Schwab wasn't aware that he could change his legal residence to that no-tax state.
But now that he's in Texas (also a no-income-tax state), the lieutenant will claim the Lone Star State as his domicile. So, even if he's transferred to a state that imposes an income tax, his military pay will be tax-free at the state level.
How to Do It
You can't just wish away state taxes by claiming a no-tax state as your home. "Domicile is a term of art meaning physical presence plus the intent to remain there permanently or to return there," explains Lt. Col. Evan Stone, director of the Armed Forces Tax Council.
Your domicile begins as your home state when you join the military and can remain the same, regardless of where you are actually deployed. Or, if you are transferred to another state—so you meet the physical presence test that Stone cited—and decide to make it your home, you can establish it as your legal residence. You can’t do this just for tax purposes. You'll want to register to vote in the state, register your car and get your driver's license there, and plan to return once your service is completed.
Although your military pay will be taxed (or not) by your domicile state, other earned income (from a second job, for example) can be taxed by the state where you are stationed. Check the rules carefully wherever you are stationed.
A Break for Spouses
In recent years, the law has been expanded to provide state-tax relief for husbands and wives. Now, a spouse who has the same domicile as a servicemember can also maintain that legal residency if the couple moves to a new state under military orders. His or her civilian pay will be taxed by the rules of the domicile, not the state where they actually live.
That rule will be a big help to Lt. Schwab, who will soon be married to Megan Gorzynski. Once they establish Texas as their legal residence, they'll both enjoy the benefits of a no-income-tax state no matter where he is stationed throughout his service.
If you have questions about establishing your domicile, check with the legal-assistance office on your base, ship or installation.
-
The Most Popular Apps for Retirement Planning in 2025A J.D. Power survey ranks retirement planning apps based on customer service and satisfaction. Does your financial app make the cut?
-
Don't Disinherit Your Grandchildren: The Hidden Risks of Retirement Account Beneficiary FormsStandard retirement account beneficiary forms may not be flexible enough to ensure your money passes to family members according to your wishes. Naming a trust as the contingent beneficiary can help avoid these issues. Here's how.
-
Standard Deduction 2025 Quiz: How Much Do You Really Know?Quiz Test your knowledge of IRS rules that impact how much money you keep in your wallet.
-
New Bill Would End Taxes on Social Security Benefits in 2026: What Retirees Should KnowTax Law Congress could look to high earners to help offset lost revenue and possibly shore up the Social Security program.
-
New $6,000 'Senior Bonus' Deduction: What It Means for Taxpayers Age 65-PlusTax Changes If you’re an older adult, a new bonus tax deduction could provide a valuable tax benefit. Here's how it works.
-
Claiming the Standard Deduction? Here Are 10 Tax Breaks For Middle-Class Families in 2025Tax Breaks Working middle-income Americans won’t need to itemize to claim these tax deductions and credits — if you qualify.
-
Over Age 65? New $6,000 'Senior Bonus' Deduction Is Available Even If You ItemizeTax Changes If you’re an older adult, a new bonus tax deduction could provide a valuable tax benefit. Here's how it works.
-
New Trump Tax Bill: Five Changes Homeowners Need to Know NowTax Changes Trump’s new tax legislation is reshaping how tax breaks for homeowners work.
-
How the 2025 Child Tax Credit Rules Impact Single ParentsTax Credits New changes to family tax credits, like the Child Tax Credit, will impact the eligibility of some households.
-
How Your 2025 Wedding Could Save You Money on TaxesTax Breaks There are some wedding expenses that are tax-deductible, and you don’t want to miss out on savings.
