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I'm a North Carolina resident who is in the military (active duty) and stationed outside the USA. How do my state taxes work?

Forum|Forum|1 year ago
November 22, 2024
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I'm active-duty Airman who is stationed in another country. Even though I'm not living/working in North Carolina, state income tax is withheld from my base pay, as I'm a resident (I hold a valid state driver's license).

I am not stationed or deployed in a combat zone. The military is my only source of income, and I'm single with no dependents.

Since I am not physically in the USA, what happens with my state taxes when it’s time to file my return? Do the state taxes I pay get refunded back to me? Do I need to file in a particular way since I'm in the military?

Any advice on this would be appreciated.

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Best answer by SteamTrain

@0rang3-Cherry6

No matter where you are stationed, you are considered a resident of NC.

While some states exempt Military pay for their residents, when they are stationed outside of their home state, NC does not. Thus, you just file your Federal and NC tax returns, as usual....nothing special. All your income is subject to NC taxation.

Active Military | NCDOR

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The exception to this is if you get deployed to an actual Combat zone. In that situation, your Military year-end W-2 will show the $$ from "Combat" pay in box 12 of the W-2 with a code Q, and box 1 of the w-2 will show as being reduced by a similar amount (or more if you have some other pre-tax deductions, like for a military TSP acccount). When this situation occurs, the software takes care of it automatically for NC once you enter your W-2 in the Federal section. Any of your other income (interest/dividends/off-duty job anywhere) will be subject to NC taxes, but is usually low enough that you won't get taxed...unless you have a Lot of other non-combat pay. or other income.

SteamTrainAnswer

Employee

@0rang3-Cherry6

No matter where you are stationed, you are considered a resident of NC.

While some states exempt Military pay for their residents, when they are stationed outside of their home state, NC does not. Thus, you just file your Federal and NC tax returns, as usual....nothing special. All your income is subject to NC taxation.

Active Military | NCDOR

__________________________________

The exception to this is if you get deployed to an actual Combat zone. In that situation, your Military year-end W-2 will show the $$ from "Combat" pay in box 12 of the W-2 with a code Q, and box 1 of the w-2 will show as being reduced by a similar amount (or more if you have some other pre-tax deductions, like for a military TSP acccount). When this situation occurs, the software takes care of it automatically for NC once you enter your W-2 in the Federal section. Any of your other income (interest/dividends/off-duty job anywhere) will be subject to NC taxes, but is usually low enough that you won't get taxed...unless you have a Lot of other non-combat pay. or other income.

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*

SteamTrain

Employee

Having your domicile state residency locked-in while you are in active duty service (NC in your case), is a huge help for most military people.

IF it wasn't, then every time you PCS'd to a new state, you might need to get a new Driver's license, car registration/plates, new voter's registration, file part-year taxes for both the former and new state...etc..etc.. what a mess that would be every time you PCS to a base in a different state.

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Now it is "possible" to reset your domicile state to a state other than NC for tax purposes, but first, you must be PCS'd to and based in that different state.....then you must change all your stuff (drivers license, car registration/plate, register to vote, etc), and then you must fill out a form DD-2058, and have it "accepted" by Military HR or Finance (not sure which)....then you likely will have to file part-year taxes for one or both states (depending on the new states tax rules) when the year ends and taxes are due.

But, with current rules, you are not required to change your claimed state of domicile with every PCS.

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*