Minnesota Income Tax on Military Pay and Retired Pay

Minnesota has a broad individual income tax and then subtracts military income from it in four separate subdivisions of section 290.0132. They do not all reach the same people. Retired pay is the widest. Compensation received from a pension or other retirement pay from the federal government for service in the military, as computed under 10 U.S.C. sections 1401 to 1414, 1447 to 1455 and 12733, is a subtraction to the extent it was in federal adjusted gross income. There is no cap, no age test and no years-of-service test. The 1447 to 1455 range is the Survivor Benefit Plan, so an SBP annuity paid to a surviving spouse is inside the same subtraction the retiree used, and 12733 is reserve retired pay computed on points. The retired pay subtraction has one condition, and it is the trap in this entry: it is limited to individuals who do not claim the credit under section 290.0677. A retiree must choose between subtracting the pension and taking the past military service credit. For most retirees with meaningful retired pay the subtraction is worth more, because the credit tops out at $750 and disappears entirely above $37,500 of adjusted gross income. Run both. Active duty pay for residents is subdivision 12. Compensation paid to Minnesota residents who are members of the armed forces of the United States or of the United Nations for active duty performed under title 10, or under the authority of the United Nations, is a subtraction. There is no dollar limit. The Guard and reserve subtraction in subdivision 11 is the one that is routinely overstated. It covers compensation paid to members of the Minnesota National Guard or other reserve components for "active service", and the subdivision then defines active service as state active service under section 190.05, subdivision 5a, clause (1), or federally funded state active service under subdivision 5b, and includes service performed under section 190.08, subdivision 3. It also expressly includes the Active Guard Reserve programme. What it does not name is ordinary inactive duty training. A drilling guardsman's weekend pay is not covered by subdivision 11, and it is not title 10 active duty either, so it is not covered by subdivision 12. Nonresidents get subdivision 15: compensation paid to a service member as defined in 10 U.S.C. 101(a)(5) for military service as defined in 50 U.S.C. 3911(2) is a subtraction. A nonresident military spouse's Minnesota wages are protected by the federal Servicemembers Civil Relief Act rather than by this subdivision, on the usual conditions that the service member is in Minnesota on orders, the couple's residence is elsewhere, and the spouse is here to be with the service member. What never enters the Minnesota computation at all, because it is outside federal gross income to begin with, is VA disability compensation, VA pension, Dependency and Indemnity Compensation, and military disability retired pay for a service-connected injury. Combat pay excluded federally is excluded here. Minnesota also does not tax social security benefits for most filers. Minnesota forgives tax on the income of a service member who dies while on active duty in the United States or United Nations armed forces for the year of death, cancels unpaid tax and penalties from earlier active duty years, and lets heirs claim a refund of income tax the member paid during active duty, with a claim window of seven years from the filing or payment. Filing extensions follow the federal pattern: 180 days from leaving a combat zone, or from discharge from a hospital for injuries received there; October 15 for a member stationed outside the United States and not in combat operations, with 90 percent of the tax still due on April 15 to avoid penalty; and six months for a reserve component member called to federal active duty.