One of the most financially impactful decisions a service member can make — that most people never think about deliberately: choosing your state of domicile.
The SCRA allows you to maintain your legal domicile in your home state regardless of where you're stationed. Your spouse can claim the same state domicile under MSRRA.
Why this matters enormously: some states have no income tax. If your domicile is Texas, Florida, Nevada, Wyoming, South Dakota, Washington, or Alaska — you pay zero state income tax on your military pay regardless of where you're stationed.
If your domicile is California: you pay California income tax on your military pay everywhere you go. California aggressively enforces this.
Changing domicile requires: genuine intent + physical presence in the new state + concrete steps (new driver's license, voter registration, vehicle registration in new state). Not just paperwork.
Quick reminders:
— BAH is not subject to federal income tax
— BAS is not subject to income tax
— Combat zone pay under IRC §112 can exclude ALL military pay from income tax during qualifying service
The difference between a Texas and California domicile can be $3,000–$8,000/year on an E-6 salary over a career.
Happy to answer state-specific questions in the comments.
State Domicile — The $5,000/Year Decision Most Service Members Never Make Deliberately
byu/Equivalent-Heart6765 inMilitaryFinance
Posted by Equivalent-Heart6765
5 Comments
this would be more helpful if it even included the form SMs need to submit to Finance
Good thought overall, but I’m 95% sure you’re wrong on CA. They don’t tax military income as long as you’re stationed outside of CA on PCS orders.
I was fortunate enough to be stationed in Texas my first duty station. Filed paperwork and have been resident for last 12 years – it can really add up especially if your spouse is high earner. My spouse is GS so that pushes AGI above 200k we’d pay 8-9k on WI state taxes per year if we hadn’t switched.
Also Missouri does have state income tax (for now), but does not tax military income
Great point, add Arizona to the list! Arizona does not tax military pay.