Active-duty pay
Partially Exempt
Deduction available for active-duty pay — verify current amount with Indiana DOR as the cap has changed in recent years.
State Guide · IN
Indiana — Military Tax Treatment
Indiana fully exempted military retirement in 2022 — a major win for IN military retirees. Active duty and Guard pay get a partial deduction. Guard members should verify the current deduction cap with Indiana DOR.
Tax treatment at a glance
Guard & Reserve drill pay
Partially Exempt
Indiana provides a deduction for National Guard and Reserve pay, generally following the same rules as the active duty deduction. Verify current cap with Indiana DOR.
Military retirement pay
Fully Exempt
Military retirement pay fully exempt as of 2022.
The numbers · verified for tax year 2025
Top marginal rate
3.0%
Retirement-pay exemption
Full
Military retirement pay and survivor benefits are 100% deductible (fully exempt) from Indiana AGI for tax year 2022 and later — no cap, no age threshold. Active-duty pay is also fully exempt for 2024+.
Standard deduction
Indiana is a flat 3.0% state rate for 2025 (dropping to 2.95% in 2026), with no standard deduction (it uses a $1,000 exemption). All 92 counties add a local income tax on top of the state rate.
VA disability compensation
Always tax-free
Federally tax-free under 38 USC § 5301. No state taxes VA disability compensation as income — Indiana included.
Survivor Benefit Plan (SBP)
Follows retirement
Indiana exempts military retirement — SBP annuities are generally exempt under the same provision.
Federal rules that override state law
SCRA — Servicemembers Civil Relief Act
Active-duty servicemembers pay state income tax only to their state of legal domicile — not the state where they are stationed. If you are from Texas and stationed in Indiana, Indiana cannot tax your military pay. This applies during all active duty periods and during Guard/Reserve mobilizations on federal (Title 10) orders.
MSRRA — Military Spouses Residency Relief Act
Military spouses can maintain their home-state domicile even when living in a different state due to their servicemember's orders. A spouse who is a Texas resident following their servicemember to Indiana can keep Texas as their tax domicile and avoid Indiana state income tax on their wages.
Guard & Reserve — the SCRA gap
SCRA pay protections apply during federal (Title 10) activation orders. During routine drill weekends and state-only activations, Guard and Reserve members are state residents serving in their home state — SCRA does not protect their drill pay from state income tax. Whether Indiana exempts that pay is the state-specific question answered above.
Filing watch-outs
- 01Active duty and Guard deduction: use Schedule 2 on IT-40
- 02Military retirement exemption: claim on Schedule M of IT-40
Veteran-specific tax benefits
Disabled veteran property tax deduction.
Official authority
https://www.in.gov/dor/ ↗State tax law changes annually. Verify current rules with the Indiana Department of Revenue before making any tax decision.
Indiana military tax — common questions
Does Indiana tax military retirement pay in 2026?
Indiana fully exempts military retirement pay. Military retirement pay fully exempt as of 2022.
Does Indiana tax active-duty military pay?
Indiana partially taxes active-duty military pay for state residents. Deduction available for active-duty pay — verify current amount with Indiana DOR as the cap has changed in recent years. Under the SCRA, Indiana can only tax the military pay of service members who are legally domiciled in Indiana — not those merely stationed there.
Does Indiana tax National Guard and Reserve drill pay?
Indiana partially taxes Guard and Reserve drill pay. Indiana provides a deduction for National Guard and Reserve pay, generally following the same rules as the active duty deduction. Verify current cap with Indiana DOR.
Is VA disability compensation taxed in Indiana?
No. VA disability compensation is federally tax-free under 38 U.S.C. § 5301, and no state — including Indiana — taxes it as income.
If I'm stationed in Indiana but claim another state, can Indiana tax my military pay?
No. Under the Servicemembers Civil Relief Act (SCRA), active-duty pay is taxable only by your state of legal domicile, not the state where you are stationed. If your domicile is elsewhere, Indiana cannot tax your active-duty military pay. Military spouses get the same protection under the MSRRA.
Related tools
Other state guides