Question

Non-Resident State Taxes (Hawaii and California) for Reservist

Forum|Forum|5 years ago
May 10, 2020
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I am a California resident and US Army Reservist filing a joint return with my spouse. Last year all my military duty was on active status (orders) in Hawaii. My spouse worked and earned her living in California. How do I exclude my military earnings in Hawaii from California State taxes?

Carl11_2

I am a California resident and US Army Reservist filing a joint return with my spouse. Last year all my military duty was on active status (orders) in Hawaii.

If you were on Active Duty (to include the 2 week yearly training) in the state of Hawaii under official government issued PCS orders, then your W-2 should 'NOT" show any income or tax withholding for the state of Hawaii in boxes 15, 16 and 17. If that is true, then you do not need to file a HI state income tax return at all.

My spouse worked and earned her living in California. How do I exclude my military earnings in Hawaii from California State taxes?

According to what I read in FTB Publication 1032, " Military servicemembers domiciled in California must include their military pay in total income. In addition, they must include their military pay in California source income when stationed in California. However, military pay is not California source income when a servicemember is permanently stationed outside of California. "

So the key word here is "permanently". If you were in Hawaii for the yearly 2-week drill, then your military pay may or may not be exempt from CA state taxes. If you were sent to HI on TDY orders, then you pay CA state taxes on the income. If you were sent to HI on PCS orders, then the pay earned while outside of CA is not subject to CA state tax. If you were sent to HI just for the 2-week drill, then I would expect that to be TDY orders, and not PCS. But it's been awhile since I retired and that very well could be PCS orders now-a-days for all I know.