On May 1, 2019, Governor Holcomb signed into law House Bill No. 1010 which included changes to the state income tax deduction for service members and their surviving spouses.
An individual, or the individual’s surviving spouse, is entitled to a state adjusted gross income tax deduction for income that was included on their federal tax return from retirement or survivor’s benefits received for service in an active or reserve component of the armed services of the United States. In the past, this deduction has been limited to the amount included in income with a maximum deduction of $6,250.
The law signed by Governor Holcomb increases the amount that may be deducted beginning in 2019. The new deduction includes a graduated increase over the next four years.
For tax years beginning in 2019, the additional amount that may be deducted is 25% of the benefits included in income that are in excess of $6,250. This additional amount will increase to 50% in 2020; 75% in 2021; and 100% for years after 2021. This will allow service members and their surviving spouses to deduct all income from retirement or survivor’s benefits that is included on their federal tax return.