Division of TaxationÓ£»¨ÊÓƵ Residents
Ó£»¨ÊÓƵ residents must report all taxable income, regardless of where it is earned, unless it is specifically exempt under Ó£»¨ÊÓƵ law. You must report your military pay, including combat pay (2020 and prior), and cost-of-living allowance, as wages on Form NJ-1040. Refer to Military Personnel and Families for information on change of residency.
Nonresidents
Nonresidents are taxed only on income they receive from Ó£»¨ÊÓƵ sources other than military compensation, such as a second part-time job. Ó£»¨ÊÓƵ source income does not include a civilian spouse's wages earned in Ó£»¨ÊÓƵ if they qualify as a nonresident under the federal Military Spouses Residency Relief Act.
Military Pay
Military pay is taxable for Ó£»¨ÊÓƵ residents. Mustering-out payments, subsistence and housing allowances, and U.S. military pension and survivor's benefit payments are not taxable.
Combat Zone Pay
For Tax Year 2021 and after, combat pay is not taxable in Ó£»¨ÊÓƵ (P.L. 2020, c. 93). The law also exempts service people from paying Ó£»¨ÊÓƵ Income Tax on their wages if they are being hospitalized for an injury from a combat zone. Do not include amounts received as combat zone compensation when reporting your gross income on a Ó£»¨ÊÓƵ Income Tax return (Form NJ-1040). The law uses federal definitions of pay to exclude, from Ó£»¨ÊÓƵ Gross Income Tax, the same pay that is excluded for federal income tax purposes. This law is not retroactive. For Tax Year 2020 and prior, combat pay is still taxable income.
U.S. Military Pension and Survivor's Benefit Payments
Military pensions result from service in the U.S. Army, Navy, Air Force, Marine Corps, or Coast Guard. Ó£»¨ÊÓƵ does not tax U.S. military pension and survivors' benefit payments. In general, these benefits are issued by the U.S. Defense Finance and Accounting Service (DFAS). Do not report your military pension or survivor's benefit on your Ó£»¨ÊÓƵ Income Tax return.
Federal Civil Service Pensions and Annuities
Federal civil service pensions or annuities issued by the U.S. Office of Personnel Management are taxable in Ó£»¨ÊÓƵ, even if the pension or annuity is based on credit for military service. You must report this income on your Ó£»¨ÊÓƵ Income Tax return.
Native American
Native American service members must file federal Form DD-2058-2 with the payroll or finance officer to claim exemption from Ó£»¨ÊÓƵ Income Tax withholding on service pay.
Determining Resident and Nonresident Status
Ó£»¨ÊÓƵ follows the federal Servicemembers Civil Relief Act, 50 U.S.C. - 3901 et seq. A service member who was a resident of a particular state when entering the service remains a resident of that state, regardless of where the individual is stationed (50 U.S.C. - 4001). That means an individual remains a resident of Ó£»¨ÊÓƵ unless a change of domicile in another state is established. Therefore, when the military posts a service member for duty, the location of the military post does not automatically change his or her residency for tax purposes.
For a more in-depth discussion of residency issues, see Part-Year Residents and Nonresidents and Military Personnel and Families .