Compensation for active service in a combat zone
Compensation received for active service in a combat zone by members of the Armed Forces of the United States is excluded from Mass. gross income.
Income earned is excluded from gross income for active service for any month during which a member below the grade of commissioned officer:
- Served in a combat zone or
- Was hospitalized as a result of injuries received during service in a combat zone.
A portion of such income earned by commissioned officers is also excluded.
Commissioned officers may exclude:
- Pay for service in a combat zone up to the amount they would have received at the highest rate of enlisted pay plus imminent danger/hostile fire pay.
- Amounts received for active service while hospitalized as a result of injuries received during service in a combat zone.
Designated combat zones include or have included:
- Persian Gulf
- Sinai Peninsula of Egypt
A 6-month extension to file a return is available to all taxpayers.
Military personnel may be eligible for further extensions if:
- Stationed in a combat zone or
- Hospitalized due to having served in a combat zone.
Mass. follows the federal extension rules for military personnel set forth in IRS Publication 3. While the rules in Publication 3 are lengthy and technical, there are some basic rules that may apply to you.
Your deadline for filing your return and paying any tax due is extended in two steps:
Your deadline is extended for 180 days after the later of one or all of the following:
- The last day you are in a combat zone
- You have qualifying service outside of the combat zone
- You serve in a contingency operation (as defined in Publication 3).
Your deadline is also extended:
- The last day of any continuous qualified hospitalization (as defined in Publication 3) for injury from service in the combat zone or contingency operation or
- While performing qualifying service outside of the combat zone.
Additional time to file (beyond the 180-day extension) is permitted if you were serving in a combat zone or in qualified hospitalization during the filing season in which the return would ordinarily have been due.
This is usually the period from January 1 of the year to the typical April 15 filing deadline. Publication 3 gives examples and illustrations to show you how to make this extension calculation.
You will not be charged interest on taxes due or penalized during the extension period. The extension to file returns also applies to spouses who file a joint return with personnel serving in combat zones.
When you file your return, notify DOR that you are taking the extension by writing "COMBAT ZONE" on the income tax envelope and the top of the income tax return that you submit to us.
If filing electronically, write "COMBAT ZONE" next to your name or on an address line (if necessary), along with the date of deployment.
Residency status & filing requirements (Including Mass. & Non-Mass. domicile)
The general rule in Mass. is that you are a resident of Mass. for tax purposes if you are domiciled in Mass. The term domicile means that you intend that Mass. will be your permanent home.
If you are a taxpayer who has enlisted in service and you are a Mass. resident, you continue to be a Mass. resident until you establish legal residence in another state. This applies even though you may be stationed outside of Mass. If your gross income is more than $8,000, you must file as a Mass. resident.
If you leave your home state for service, your domicile is the same as it was before your service period, despite your being absent for a long time from your state of domicile.
There is no change of domicile until you establish a new residence with the intention to make it your new permanent home and decide not to return to your former residence. You will neither lose nor acquire a residence or domicile because you were absent or present in any tax jurisdiction in the U.S. on military orders.
Taxpayers who are not domiciled in Mass. are considered residents if they have a permanent place of abode in Mass. and spend in the aggregate more than 183 days of the taxable year in Mass.
When determining whether you are a Mass. resident, a day you spend in Mass. while on active duty in the U.S. armed forces is not counted as a day you spent in Mass. Thus, you are not taxable under the 183-day rule even if you have spent more than 183 days on active duty in Mass.
However, once you have spent more than 183 days in Mass. while not on active duty, you are taxable as a Mass. resident if you have a permanent place of abode here.
Your income is considered to be earned in your state of domicile even if you are performing duties in another state. However, you may be eligible for a Mass. credit for taxes paid to other states.
Note on Spouses of Military Servicemembers
The rules that apply to spouses of military servicemembers are similar to the rules that apply to military servicemembers, but spouses are permitted to elect on a year-by-year basis to use the servicemember’s state of residence for purposes of taxation. If you are the spouse of a military servicemember you should consult TIR 19-15 to determine what your residence or domicile is.
Nonresident Mass. military service compensation
A nonresident servicemember is not subject to tax on the servicemember’s compensation for military service but is subject to tax on Mass. source income earned other than from military sources.
As a nonresident taxpayer, if you are required to file in Mass. because you have Mass. source income other than military source income:
- When determining whether you qualify for no-tax status and the limited income credit when filling out Schedule NTS-L-NR/PY, do not include any military service compensation as non-Mass. source income.
- When filling out the section on Form 1-NR/PY entitled “NONRESIDENT DEDUCTION & EXEMPTION RATIO”, include military service compensation as non-Mass. source income.
Examples of Mass. gross income (included and excluded)
- Military service compensation is included for residents, but not for nonresidents
- Compensation for active service in a combat zone by members of the U.S. armed forces is excluded for both residents and nonresidents.
- Mass. follows the federal rules that apply to members of the uniformed services with respect to exclusions for selling a home, as set forth in IRS Publication 523. This applies to both residents and nonresidents.
- Mass. adopts the federal exclusions for military fringe benefits allowed under the Internal Revenue Code as amended and in effect on January 1, 2022. This applies to both residents and nonresidents. These fringe benefits include:
- Department of Defense Homeowners Assistance Plan - IRC § 132(n);
- Dependent care assistance under a dependent care assistance program;
- Travel benefits received under the Operation Hero Miles program offered through public and air and surface carriers, such as tickets, vouchers, and frequent flyer miles; and
- Increased death benefit gratuity of $12,000.
U.S. military pensions, which are included in federal gross income, are excluded from Mass. gross income for both residents and nonresidents.
U.S. military pensions are those derived from the armed forces and the Commissioned Corps of the National Oceanic and Atmospheric Administration and of the Public Health Service.
The following special rules apply to members of the Junior Reserve Officers' Training Corps (JROTC):
- When a member of the JROTC retires from military service, the member may receive a return of contributions plus interest. The lump sum is not taxable in Mass.
- After receiving the lump sum, any pension amount received is considered non-contributory, and is taxable to Mass. residents but not to nonresidents.
If you are a retired commissioned or noncommissioned officer, you can serve as an instructor or administrator in JROTC units.
If you are employed under these rules, you are not considered to be on active duty or inactive duty training.
Therefore, both residents and nonresidents (as applicable) must include pay attributed to this activity in gross income.
Spouses of military personnel
As a spouse of a service member, your status as a resident or nonresident will determine the way you are taxed in Mass.
A Mass. resident spouse of a Mass. resident military servicemember must file a personal income tax return in the same way as any other resident, with the following exemption:
- Exception: A resident spouse may qualify as a nonresident
You may qualify for “nonresident” status, even if you are living in Mass., either because you have elected to have the same state of residence or domicile as the military servicemember, or because you qualify for that status for another reason, as described in TIR 19-15.
Taxation of income of a nonresident spouse of a military servicemember
The following rules apply:
- A nonresident military spouse in Mass. is not subject to tax on the income described below if the military spouse is in Mass. solely to be with the servicemember who is serving in compliance with military orders. 50 USC § 4001(c), G.L. c. 62, § 5A.
- To the extent income is attributable to the nonresident spouse’s performance of services, it is exempt. Otherwise, all types of income, including investment income, derived from or effectively connected with the carrying on of a trade or business within Mass. are Mass. source income.
- Mass. source income that is unrelated to the services performed by the nonresident military spouse does not qualify for the exemption. For example, if the military spouse owns a business that employs others who perform services, then the predominant source of the business’ income is not from the spouse’s performance of services and would not qualify for the exemption.
Similarly, items of gross income received by a nonresident military spouse that are derived from or effectively connected with the participation in any lottery or wagering transaction in Mass., or the ownership of any interest in real or tangible personal property located in Mass., remain subject to taxation.
Military spouse wage withholding exemption
A military spouse whose wages are exempt from Mass. personal income tax will be exempt from wage withholding if the taxpayer files with her or his employer a properly completed Mass. Form M-4-MS, Annual Withholding Tax Exemption Certificate for Military Spouse, and provides the employer with the following documentation:
- A Military Spouse ID card
- A Department of Defense Form 2058, State of Legal Residence Certificate – “legal residence for purposes of withholding state income taxes from military pay"
- A Leave and Earnings Statement of servicemember
- The Servicemember’s current military orders assigning such servicemember to a post of duty in Mass.
The Form M-4-MS must be validated on an annual basis. The military spouse must show continued eligibility for the exemption.
Scenarios that will cause the spouse to lose eligibility include:
- The Servicemember leaving the service
- A voluntary physical separation due to duty changes
- (i.e., the servicemember’s orders move him or her to a location outside Mass. where the spouse is allowed to join him or her but chooses not to)
- The spouse establishing Mass. as his or her state of domicile.
The spouse of a servicemember can claim a withholding refund by filing a Form 1-NR/PY - Mass. Nonresident Income Tax Return if the spouse has had personal income tax withheld on income that is exempt from Mass.
Filing rules for a nonresident spouse of a servicemember
- A nonresident spouse of a servicemember must file the Form 1-NR/PY return on paper. Electronic filing is not allowed.
- Write "MSRRA" across the top of the Form 1-NR/PY and attach copies of (i) the Military Spouse ID card, (ii) the Department of Defense Form 2058, State of Legal Residence Certificate – “legal residence for purposes of withholding state income taxes from military pay,” (iii) the LES, Leave and Earnings Statement of servicemember, and (iv) the servicemember’s current military orders assigning such servicemember to a post of duty in Mass.
- Include the exempt wages that were subject to withholding on Form 1-NR/PY, Line 5, and subtract those wages on Schedule Y, Line 4.
In determining eligibility for the Earned Income Tax Credit, the servicemember’s compensation is not considered income for services performed in or from sources in Mass.
Business expense deductions for National Guard and Reserve members
If a National Guard or Reserve member has to travel more than 100 miles from home to perform services, the member is allowed a deduction for:
- Unreimbursed overnight travel
- Lodging expenses
To claim the deduction on your tax return, report it on MA Form 1 (or 1-NR/PY), Schedule Y.
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- (800) 392-6089 (toll-free in Massachusetts).
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