Federal tax law has some beneficial (and well-deserved) breaks for military families. And, there 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.
The Minnesota Department of Revenue has a host of helpful information for military servicemembers and their families. Visit the Minnesota Department of Revenue website to learn more about tax benefits you may be eligible for.
The Minnesota Department of Revenue has compiled this helpful list of frequently asked tax questions for military servicemembers and their families.
You are not required to pay Minnesota tax on your federal active-duty military pay for services performed outside of Minnesota.
Starting in 2005, if you are a Minnesota resident who is serving on federal active duty, you are allowed a subtraction of your active-duty military pay (to the extent it is federally taxable) for the time you are stationed outside of Minnesota. If your federal active-duty pay for services performed outside Minnesota is the only income you received, you are not required to file a Minnesota return. For more information see Filing requirements and history for active-duty military.
As a Minnesota resident, you might qualify for some of the state’s refundable credits (such as the Minnesota Working Family Credit). If you are eligible for these credits, you will need to file a Minnesota return in order to claim them.
For tax years 2001 through 2004, if you were federal active-duty military and served outside of Minnesota during the year, you were considered a nonresident for tax purposes. As a nonresident, you were not required to file Form M1 unless your Minnesota source income exceeded the Minimum filing requirements for the year.
You are taxed by Minnesota on your wife’s income and any other Minnesota source income. File Form M1 and take a subtraction of your federal active-duty military pay earned outside of Minnesota on Schedule M1M. This will reduce your Minnesota taxable income. You may be eligible to claim the Working Family Credit or other Minnesota credits.
If your Minnesota gross income is below $9,500 (2011), you do not need to file a return.
For more information on this topic, see the Minnesota Department of Revenue's section on Members of the armed forces.