For Oregon residents, military active duty pay may be eligible for subtraction from taxable income on Oregon Form OR-40, reducing state tax liability. The subtraction applies to military pay earned both inside and outside Oregon, subject to specific rules and limits.
Eligible Military Pay Subtractions
- Military pay earned while stationed outside Oregon: An Oregon resident may subtract military pay earned while stationed anywhere outside Oregon, provided the military pay is included in federal AGI. This subtraction is not limited to service in a designated combat zone.
- Guard and reserve members assigned away from home: National Guard members and reservists may subtract military pay earned while assigned away from home for 21 days or longer.
- Oregon National Guard active service: An Oregon National Guard member may subtract military pay earned while in active service of the state or on state active duty under the authority of the Governor.
- Other military pay: After the applicable military-pay subtractions above are taken, a taxpayer may subtract remaining taxable military pay up to $6,000 per military member. This is a separate maximum and applies only to military pay that has not already qualified for another military-pay subtraction.
- Overall limitation: A taxpayer may qualify for more than one military-pay subtraction, but the total military-pay subtraction cannot exceed the military pay included in federal AGI. Military pay that is already excluded from federal AGI, such as qualifying combat pay, generally does not require an Oregon subtraction because it was not included in Oregon taxable income
Example
An Oregon resident earns $10,000 of active-duty military pay while stationed in Spain and $8,000 of other military pay while serving in Oregon. The full $18,000 is included in federal AGI.
The taxpayer may subtract:
- $10,000 of military pay earned while stationed outside Oregon; and
- Up to $6,000 of the remaining military pay under the other military pay subtraction.
The total Oregon military-pay subtraction is therefore $16,000, assuming the taxpayer otherwise meets the applicable requirements. The subtraction is claimed on Schedule OR-ASC with Form OR-40.
Source:
Publication OR-17
Disclaimer: Always verify details with the current year’s Oregon Department of Revenue forms and instructions. For complex situations, consult a CPA or tax professional.