West Virginia Active Duty Pay Modification

This entry exists to correct an expectation. West Virginia is often described as exempting the military pay of resident servicemembers. It does not do that in the way neighboring states do, and a soldier who stops filing on that understanding will be wrong. West Virginia Code 11-21-12e contains two modifications and neither is a general exemption of active duty pay. Subsection (a), in force for taxable years after December 31, 2000, exempts active duty pay received by a member of the National Guard or armed forces reserve called to active duty by Executive Order of the President for duty in Operation Enduring Freedom, or for domestic security duty. That is tied to two named categories of call-up. It is not a general Guard and Reserve exemption, and Operation Enduring Freedom formally ended in 2014. Subsection (b), in force for taxable years after December 31, 2012, is the one most people can use. Active duty pay received by a resident who is on active duty for thirty continuous days or more, in the Armed Forces, National Guard, or armed forces reserve, is a decreasing modification "for the taxable year in which the individual has separated from active military service." Read that clause carefully, because it is the whole of the benefit. The deduction is taken in the year of separation. It is a one-time modification against the pay included in federal adjusted gross income, not a running exemption for every year of service. A servicemember who serves six years and separates in year six takes the modification once, on the return for year six. So the practical position for a West Virginia resident in uniform is this. While serving, active duty pay is ordinarily taxable by West Virginia unless subsection (a) applies. Weekend drill pay is not exempted by either subsection. In the year you separate, subsection (b) gives you a deduction, and that year's return is the one to take care over. Two things that are genuinely exempt and are easy to confuse with this. Military retired pay is fully exempt under a separate modification and has its own entry. And combat pay that federal law already excludes never enters federal adjusted gross income, so it never reaches a West Virginia return in the first place and needs no state modification. A nonresident spouse of a nonresident servicemember stationed in West Virginia under military orders is covered by the federal Military Spouses Residency Relief Act rather than by this section. Because the two modifications are narrow and the separation-year rule is easy to miss in both directions, this is a good year to have a Department of Veterans Assistance service officer or a preparer look at the return.