Life changes
Military Move This Year? What It Means at Tax Time
Military families have their own set of rules: moving costs that are still deductible, pay that is not taxed, and state residency that does not change just because the orders did.
Reviewed by LaToya Clark-Thompson, FounderLast updated
What changes on your return
Your W-2 comes from the Defense Finance and Accounting Service (through myPay). Allowances such as basic allowance for housing and basic allowance for subsistence are not taxable and are not included in Box 1 wages. Pay earned while serving in a combat zone is excluded from income, and enlisted members can exclude all of it (officers up to a limit). Combat pay can still be counted for the earned income credit if you choose, which sometimes helps.
Active-duty members of the Armed Forces who move because of a permanent change of station can still deduct unreimbursed moving expenses on Form 3903. That deduction is gone for most civilians, so it is easy for software or a preparer unfamiliar with military returns to skip it. Reimbursements and the dislocation allowance are generally not taxed when they are excluded from your W-2.
Which state you file in
Federal law lets service members keep their state of legal residence (domicile) when orders move them elsewhere. Military pay is taxed by the home state, not the duty state. Spouses can generally elect to use the service member’s state of residence or keep their own, which affects where a spouse’s wages are taxed. Civilian income, such as a side job, may still be taxable where you earn it.
If South Carolina is your state of legal residence but you are stationed elsewhere, you may still owe an SC return. If you are stationed in South Carolina but domiciled elsewhere, your military pay is generally not SC income. Check the residency rules carefully when a move puts you in a new state. Our moving to South Carolina page covers civilian side issues.
Military retirement and veterans’ benefits
South Carolina exempts military retirement income from state tax, which is part of why many retirees settle here. Federally, military retirement pay is taxable, arrives on Form 1099-R, and you set withholding through myPay. VA disability compensation is not taxable federally. If disability pay is later approved retroactively, it can lead to an amended return to recover tax on retirement pay that became nontaxable. Our military and veteran taxes article goes further.
What to bring and common mistakes
- Your W-2 from DFAS and your spouse’s W-2s
- Copies of PCS orders and receipts for unreimbursed moving costs (movers, storage, lodging en route, mileage)
- Your travel voucher settlement showing what was reimbursed
- Your Leave and Earnings Statement for the end of the year, which shows state of legal residence
- Form 1099-R for military retirement and any VA award letters
Mistakes we see: a spouse’s wages taxed by the duty state when the spouse could have used the service member’s state, PCS moving costs left off, combat pay entered as taxable, and filing in two states for the same income.
Getting help and the next step
Deadline extensions apply automatically to members serving in a combat zone, and some of these rules interact in ways that are easy to get wrong in a move year. We prepare military returns in the office or virtually, so a family that has moved away can keep the same preparer. Book through our tax preparation page, and if a past return missed the moving deduction or the spouse residency election, an amended return can often still fix it.
Frequently asked questions
Can military members still deduct moving expenses?
Yes. Active-duty members of the Armed Forces who move because of a permanent change of station can deduct unreimbursed moving costs on Form 3903, even though most other people can no longer take this deduction. Reimbursed costs excluded from your W-2 are not deducted again. Keep your orders, receipts and travel voucher settlement to support the amount.
Does my military spouse have to pay taxes in the state where we are stationed?
Often not. Under federal law, a military spouse can generally elect to use the service member’s state of legal residence for state tax purposes, or keep their own residence, instead of becoming a resident of the duty state. That usually means the spouse’s wages are taxed by the chosen home state. The spouse may need to give the employer a form to stop duty-state withholding.
Is military retirement pay taxed in South Carolina?
No. South Carolina exempts military retirement income from state income tax, including qualifying survivor benefits. Federally, military retirement pay is still taxable, so it appears on your federal return from Form 1099-R. The SC return has a specific subtraction for it, so make sure the preparer knows which 1099-R is military retirement.
Is combat zone pay taxable?
Pay received for service in a combat zone is excluded from federal income. Enlisted members and warrant officers exclude all of it, while commissioned officers exclude up to a cap tied to the highest enlisted pay. The excluded amount is shown in Box 12 of your W-2 with code Q. You can choose to include it for the earned income credit if that gives a better result.
Not the question you had? The full tax FAQ covers more ground, and our client reviews say what the work is actually like.
Related pages
You retired
Pensions and IRAs on a 1099-R, required distributions, withholding and SC’s retirement deduction.
Learn moreYou changed jobs
Two W-2s, an old 401(k), a bonus and withholding that may not fit anymore.
Learn moreYou moved to South Carolina
Part-year resident returns, what South Carolina taxes, retirement income and what to bring.
Learn moreYou moved out of South Carolina
The final part-year SC return, income SC still taxes and keeping your new state straight.
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