New Jersey Residents
New Jersey residents must report all taxable income, regardless of where it is earned, unless it is specifically exempt under New Jersey law. You must report your military pay, including combat pay (2020 and prior), and cost-of-living allowance, as wages on Form NJ-1040. Refer to Military Personnel and Families for information on change of residency.
Nonresidents are taxed only on income they receive from New Jersey sources other than military compensation, such as a second part-time job. New Jersey source income does not include a civilian spouse's wages earned in New Jersey if they qualify as a nonresident under the federal Military Spouses Residency Relief Act.
Military pay is taxable for New Jersey residents. Mustering-out payments, subsistence and housing allowances, and U.S. military pension and survivor's benefit payments are not taxable.
Combat Zone Pay
For Tax Year 2021 and after, combat pay is not taxable in New Jersey (P.L. 2020, c. 93). The law also exempts service people from paying New Jersey Income Tax on their wages if they are being hospitalized for an injury from a combat zone. Do not include amounts received as combat zone compensation when reporting your gross income on a New Jersey Income Tax return (Form NJ-1040). The law uses federal definitions of combat zone pay to exclude, from New Jersey Gross Income Tax, the same pay that is excluded for federal income tax purposes. This law is not retroactive. For Tax Year 2020 and prior, combat pay is still taxable income.
U.S. Military Pension and Survivor's Benefit Payments
Military pensions result from service in the U.S. Army, Navy, Air Force, Marine Corps, or Coast Guard. New Jersey does not tax U.S. military pension and survivors' benefit payments. In general, these benefits are issued by the U.S. Defense Finance and Accounting Service (DFAS). Do not report your military pension or survivor's benefit on your New Jersey Income Tax return.
Federal Civil Service Pensions and Annuities
Federal civil service pensions or annuities issued by the U.S. Office of Personnel Management are taxable in New Jersey, even if the pension or annuity is based on credit for military service. You must report this income on your New Jersey Income Tax return.
Native American service members must file federal Form DD-2058-2 with the payroll or finance officer to claim exemption from New Jersey Income Tax withholding on service pay.
Determining Resident and Nonresident Status
New Jersey follows the federal Servicemembers Civil Relief Act, 50 U.S.C. - 3901 et seq. A service member who was a resident of a particular state when entering the service remains a resident of that state, regardless of where the individual is stationed (50 U.S.C. - 4001). That means an individual remains a resident of New Jersey unless a change of domicile in another state is established. Therefore, when the military posts a service member for duty, the location of the military post does not automatically change his or her residency for tax purposes.