NE 22-04-1 Individual Income Tax 2004-01-09

If a nonresident servicemember files a Nebraska return for other income, can they subtract their active-duty military pay, and how?

Short answer: Yes. Revenue Ruling 22-04-1 holds that compensation paid to a nonresident servicemember of the uniformed services for active-duty military service can be deducted from federal adjusted gross income for tax year 2003 and subsequent years. A nonresident servicemember who files a Nebraska return to report a separate Nebraska job or a spouse's Nebraska income may subtract their active-duty military pay in figuring the Nebraska tax; the deduction goes on Nebraska Schedule I, Line 52, labeled "Nonresident military service compensation," with the armed-forces Form W-2 attached to Form 1040N. The excluded pay is also removed from the Schedule III apportionment (line 62 numerator and denominator). Under Neb. Rev. Stat. § 77-2732, nonresident military couples who file a joint federal return may elect to file a Nebraska married joint return and still deduct the servicemember's military compensation. Nebraska residents in the military are not affected by this change, and active-duty compensation does not include National Guard or Reserve pay unless the member has been called to active duty. This follows the federal Servicemembers Civil Relief Act of 2003 (P.L. 108-189).

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This page answers the general question as of 2004. Ezel answers yours, under current Nebraska tax law, with citations.

Disclaimer: This is an official Revenue Ruling of the Nebraska Department of Revenue, a guidance document stating the Department's interpretation of how Nebraska tax law applies. Each Nebraska guidance document carries the notice that it 'is advisory in nature but is binding on the Nebraska Department of Revenue until amended.' Unlike a private letter ruling, a Revenue Ruling is a general statement of Department policy rather than advice to a single taxpayer, but it can be amended, superseded, or made obsolete by a later ruling or a change in statute or regulation, many rulings in this series have been rescinded or superseded, so confirm it is still in effect before relying on it. Nebraska's local option sales and use taxes are administered by the Department, not self-collected by home-rule cities. This summary is informational only and is not legal or tax advice. Consult a licensed Nebraska tax professional about your situation.

About this page: The plain-English summary, reader guidance, and Q&A below were written by Ezel based on the official state tax ruling. The original ruling (linked on this page as a PDF) is the authoritative source for any reliance.

View original ruling (PDF)

Plain-English summary

A nonresident servicemember who has to file a Nebraska return — because they hold a separate civilian job in Nebraska, or because their spouse earns income here — can subtract their active-duty military pay when figuring the Nebraska tax. This ruling explains how, and it applies for tax year 2003 and later, reflecting the federal Servicemembers Civil Relief Act of 2003 (H.R. 100, P.L. 108-189).

Who this affects. It is about nonresidents of Nebraska serving in the uniformed services. Nebraska residents in the military are not affected by this change in how their Nebraska returns are filed.

How to take the deduction. Deduct the nonresident military service compensation that was included in the servicemember's federal adjusted gross income on Nebraska Schedule I, Line 52, writing in "Nonresident military service compensation" together with the amount. Attach the armed-forces Form W-2 to the Form 1040N to support it. This works for a single, head-of-household, or married-filing-separate servicemember filing to report outside income.

Married couples filing jointly. Under Neb. Rev. Stat. § 77-2732, couples may elect to file a married joint Nebraska return as if both were residents. Nonresident military families who file a joint federal return may make that election and still deduct the servicemember's nonresident military compensation on Schedule I, Line 52.

Apportionment. The pay excluded on Line 52 is also excluded from the Nebraska Schedule III calculations, including both the numerator and denominator on Line 62 of Schedule III — so it doesn't distort the ratio that apportions the rest of the income to Nebraska.

What's not covered. Military active-duty compensation does not include National Guard or Reserve pay unless the servicemember has been called to active duty.

What this means for you

A nonresident servicemember with Nebraska income

If you're stationed or working such that you're a Nebraska nonresident but you (or your spouse) have Nebraska-source income that puts you on a Form 1040N, you don't owe Nebraska tax on your active-duty military pay. Report it out on Schedule I, Line 52, label it, and attach your military W-2. Remember to pull the same amount out of both the top and bottom of the Schedule III, Line 62 ratio.

Guard and Reserve members

Ordinary Guard or Reserve pay isn't "active-duty military service compensation" for this deduction — it only qualifies once you've been called to active duty.

Nebraska residents in the military

This ruling doesn't change how you file. It addresses nonresident servicemembers.

Common questions

Q: On which line does the deduction go?
A: Nebraska Schedule I, Line 52, labeled "Nonresident military service compensation," with the military Form W-2 attached to Form 1040N.

Q: Can a nonresident military couple file a Nebraska joint return and still deduct the military pay?
A: Yes. Under § 77-2732 they may elect to file a married joint Nebraska return as if both were residents and still deduct the servicemember's nonresident military compensation.

Q: Does National Guard or Reserve pay qualify?
A: Not unless the servicemember has been called to active duty.

Q: What tax years does this cover?
A: Tax year 2003 and subsequent years.

Citations and references

Neb. Rev. Stat. § 77-2732 — election for couples to file a married joint Nebraska return as if both were residents.
Servicemembers Civil Relief Act of 2003 — H.R. 100, P.L. 108-189 (the federal law prompting the ruling).
Nebraska Schedule I, Line 52 — where the nonresident military service compensation is deducted; Schedule III, Line 62 — where it is also excluded from the apportionment numerator and denominator.

Source

Original ruling text

REVENUE RULING 22-04-1
January 9, 2004
Individual Income Tax-Military Service Compensation Paid to Nonresidents of Nebraska.
COMPENSATION PAID TO A NONRESIDENT SERVICEMEMBER OF THE UNIFORMED
SERVICES FOR ACTIVE DUTY MILITARY SERVICE CAN BE DEDUCTED FROM FEDERAL
ADJUSTED GROSS INCOME FOR TAX YEAR 2003 AND SUBSEQUENT YEARS.
Advice has been requested as to the effect of passage of H.R.100, the Servicemembers Civil
Relief Act of 2003 (P.L.108-189) on the ﬁling of Nebraska returns by nonresident military
servicemembers.
Nonresident servicemembers ﬁling to report income earned from a separate job in Nebraska or
the income of a spouse living in Nebraska may subtract their military service active duty pay in
determining the tax due to Nebraska. Residents of Nebraska serving in the military are not affected
by H.R.100 with regard to the ﬁling of their Nebraska tax returns.
Nebraska Statute Section 77-2732 provides an election for couples to ﬁle a married joint return
as if both were residents. Nonresident military families who ﬁle married joint federal returns
may elect to ﬁle a Nebraska married joint return and can deduct any nonresident military service
compensation included in the servicemember’s federal adjusted gross income on Nebraska
Schedule I, Line 52. They should write on Line 52, “Nonresident military service compensation”
together with the amount being deducted. In addition, the Form W-2 issued by the armed forces
to the servicemember is to be attached to the tax year 2003 or subsequent years’ Form 1040N to
support the amount being deducted.
A nonresident single, head of household, or married ﬁling separate servicemember ﬁling to report
outside income may deduct his or her nonresident military service compensation on the tax year
2003 and subsequent years’ Form 1040N, Schedule I, and attach the appropriate Form W-2 as
indicated above. The nonresident military service compensation excluded on Line 52 of Nebraska
Schedule I is also excluded from any Nebraska Schedule III calculations, including the numerator
and denominator calculations performed on Line 62 of Schedule III.
Military service active duty compensation does not include National Guard or Reserve pay unless
the servicemember has been called to active duty.
APPROVED:

Mary Jane Egr
State Tax Commissioner
January 9, 2004

Nebraska Department of Revenue, P.O. Box 94818, Lincoln, Nebraska 68509-4818

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