16084: IN - Military Retirement Income

Data entry and requirements vary depending on the tax year and IN guidelines.

2019 

The IN Military Retirement Income and/or Survivor's Benefits Deduction calculation has been modified starting in tax year 2019 as follows: 

• The taxability of this income is being phased out over a four-year period of time.
• The maximum annual deduction has increased to the lesser of the amount received or $6,250, plus:
  • for 2019, 25% of the amount received that exceeds $6,250;
  • for 2020, 50% of the amount received that exceeds $6,250;
  • for 2021, 75% of the amount received that exceeds $6,250.
  • for 2022 and thereafter, deduct 100% of the amount received.

In Drake19, the IN SCH2 screen has a worksheet in bottom right of the screen. Enter the total military retirement income for the taxpayer and/or spouse in the worksheet and the software will do the calculation and carry the amount to Indiana Schedule 2 or Schedule C, as applicable.

Note: amounts entered on the federal 1099-R screen with pension type M will flow to the Schedule 2/Schedule C.

2018 

The IN DOR changed Military retirement income and survivor's benefit deduction in 2018: 

"The income on line 1 of Form IT-40 may include military retirement income and/or survivor’s benefits. If it does, you (and/or your spouse, if married filing jointly and both qualify) may be eligible to take this deduction. Beginning in 2018:

• There is no minimum age requirement to be eligible for the military retirement income deduction, and
• The maximum amount to be deducted has increased from $5,000 to $6,250.

This policy qualifies under the Indiana Long-Term Care program for Medicaid Asset Protection. This policy may provide benefits in excess of the asset protection provided in the Indiana Long-Term Care program. Your deduction will be the amount of military retirement income and/or survivor’s benefits included on line 1 of Form IT-40 or $6,250, whichever is less. If both you and your spouse received military retirement income and/or survivor’s benefits, you may each claim the deduction for a maximum of $12,500 (up to $6,250 each). Important. You must enclose your military retirement income statement and/or survivor’s benefit statement with the tax return if you are claiming this deduction."

Starting in 2018, taxpayers who are eligible for one of these deductions, should enter code 632 on Schedule 2, line 11 and then the amount of military retirement income and or survivor benefits that are included on line 1 of Form IT-40, or $6,250, whichever is less.

In Drake18, to enter this amount, go to IN data entry > Deductions tab > SCH2 screen > Line 11 Other Deductions: List Source(s). Choose 632 in the drop list and enter the amount in the box to the right.

Note: If both the taxpayer and the spouse qualify for this deduction on a MFJ return, enter the code and the applicable amount up to $12,500. 

See the 2018 Instructions for more information. 

2017 and prior 

In 2017 and prior, this deduction was figured on the IN SCH2 screen, line 7 and was limited to $5000.