Do I select Active duty wages for my wife W-2 income from CA who is a resident of PA.

No, you will not select that her non-military wages from CA are active duty wages.

Regarding your wife's CA wage income -

If she is covered under MSRRA, she will only file taxes in your state of legal residency (SLR).

In order to get the full refund of her CA state income tax withholdings, she will need to file a nonresident CA return but report zero "0" income from CA (even though she does have CA wage income). She must mail in this CA nonresident state income tax return and include her state W-2 information. She will want to include an explanatory statement with her CA return stating her situation (that her CA employer withheld CA state income taxes from her wages in error because she is a military spouse and covered under MSRRA).

You can add a state under the state taxes tab in TurboTax.

However, if she does not qualifies under the MSRRA and is claiming PA as her state of residence (while you are claiming a different state as your state of legal residence, then you can still file jointly for federal income tax but will need to file married filing separately for state taxes.

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