PA Local Tax

[Capt MJ]

Here is the guidance for state of PA for military active duty serving out of state.

Military Pay

Military Pay

www.pa.gov

As for local tax, if that is a county tax or city tax, it all depends on whether they have a similar provision for military members.

 

[RetiredVeteran]

However, you cannot stop a tax withholding from a state you are a resident of, as it is required by law. You can lower a withholding, but then risk a under-withholding penalty depending on your jurisdictions interpretation of their local tax law.

The assertion that active duty military members cannot stop state tax withholding from their state of residence while stationed outside that state is incorrect. This is explicitly addressed by federal law under the Servicemembers Civil Relief Act (SCRA). Under 50 U.S. Code § 4001(a) of the SCRA, Active-duty military members are legally permitted to stop state tax withholding from their state of residence while stationed outside that state, as their military pay is not subject to state income tax under the SCRA. This is a federal right, and states like Pennsylvania or any other state for that matter adhere to this principle in their tax laws.

I completely stopped withholding from California while I was active duty; for many years - 100 percent. They owed me nothing and I owed them nothing at the end of each year.

Book answer:
As a California resident on active duty stationed outside of California, under the Servicemembers Civil Relief Act (SCRA) and California law, your military pay is not taxable by California while you’re stationed outside the state. And if your income isn’t taxable, there’s nothing to withhold.
You are absolutely allowed to:

• Stop California state withholding from your military pay
• Claim exemption from CA withholding via your finance/pay office (usually using a state withholding exemption form or a special designation in MyPay/DFAS)

Why people get confused:

1. They think “resident = always taxed.”
   • Wrong. The key is where the income is earned and what kind of income it is.
   • Your military pay was earned under federal orders — and outside CA. That makes it exempt.
2. They don't understand SCRA.
   • It protects servicemembers from being taxed by their home state when stationed elsewhere.
3. They assume withholding = required no matter what.
   • Nope. If the income isn’t taxable, withholding isn’t required.

The FTB states that if your domicile is California, you are considered a resident and pay tax on all income while permanently stationed here. However, if you are stationed outside California on permanent change of station (PCS) orders, you are considered a nonresident and are only taxed on California-sourced income. Since military pay is not considered California-sourced income, it is exempt from California state income tax.

 

[Haveaniceday]

The assertion that active duty military members cannot stop state tax withholding from their state of residence while stationed outside that state is incorrect. This is explicitly addressed by federal law under the Servicemembers Civil Relief Act (SCRA). Under 50 U.S. Code § 4001(a) of the SCRA, Active-duty military members are legally permitted to stop state tax withholding from their state of residence while stationed outside that state, as their military pay is not subject to state income tax under the SCRA. This is a federal right, and states like Pennsylvania or any other state for that matter adhere to this principle in their tax laws.

I completely stopped withholding from California while I was active duty; for many years - 100 percent. They owed me nothing and I owed them nothing at the end of each year.

Book answer:
As a California resident on active duty stationed outside of California, under the Servicemembers Civil Relief Act (SCRA) and California law, your military pay is not taxable by California while you’re stationed outside the state. And if your income isn’t taxable, there’s nothing to withhold.
You are absolutely allowed to:

• Stop California state withholding from your military pay
• Claim exemption from CA withholding via your finance/pay office (usually using a state withholding exemption form or a special designation in MyPay/DFAS)

Why people get confused:

1. They think “resident = always taxed.”
   • Wrong. The key is where the income is earned and what kind of income it is.
   • Your military pay was earned under federal orders — and outside CA. That makes it exempt.
2. They don't understand SCRA.
   • It protects servicemembers from being taxed by their home state when stationed elsewhere.
3. They assume withholding = required no matter what.
   • Nope. If the income isn’t taxable, withholding isn’t required.

The FTB states that if your domicile is California, you are considered a resident and pay tax on all income while permanently stationed here. However, if you are stationed outside California on permanent change of station (PCS) orders, you are considered a nonresident and are only taxed on California-sourced income. Since military pay is not considered California-sourced income, it is exempt from California state income tax.

I appreciate your point of view, but respectfully you are conflating several tax topics, both state and federal, interpreting SCRA in a novel way, and speaking to your experience in just one of the 50 states.

These boards are intended to provide resources and point folks in the right direction to get help with their issue or concern. I will again recommend that cadets seek guidance from a local CPA for their specific state and for their specific issue and not rely on board postings from anyone including myself.

Have a nice day!

 

[RetiredVeteran]

I appreciate your point of view, but respectfully you are conflating several tax topics, both state and federal, interpreting SCRA in a novel way, and speaking to your experience in just one of the 50 states.

These boards are intended to provide resources and point folks in the right direction to get help with their issue or concern. I will again recommend that cadets seek guidance from a local CPA for their specific state and for their specific issue and not rely on board postings from anyone including myself.

Have a nice day!

I appreciate your response, but I’d like to clarify that my explanation is not based on opinion or limited personal experience, but on federal law — specifically, the Servicemembers Civil Relief Act (SCRA), codified at 50 U.S. Code § 4001(a), which clearly addresses this issue. Active-duty service members stationed outside their state of legal residence are not subject to that state's income tax on their military pay. This is not a novel interpretation; it's well-established.

You mentioned I may be "conflating several tax topics," but I believe there’s no confusion here. The issue is about applying state residency rules and military pay exemptions under the SCRA. The SCRA protects service members from being taxed by their home state when stationed elsewhere, which means no withholding is required if military pay is not taxable by that state. Military finance offices allow withholding to be stopped when proper documentation is provided, and I, like others, have done this successfully and legally.

You're right that individuals should consult a CPA if unsure, but it's important not to discourage servicemembers or those seeking resources to get help with their issue or concern from exercising their federal right to stop withholding when it's lawful to do so.

 

[Professor T]

Active military stationed outside of PA do not pay state tax. You simply put 0 as State Wages, regardless of what dollar amount is shown on the W2 (Box 16, I believe). Put in all the other numbers as reported on the W2. In effect, the entire state withholding is sent back as a refund.

I HIGHLY recommend she files a few PA-40X returns, which is the amended tax return for PA. She can go back three years. It is a simple two-page form. She is entitled to getting a refund on any withheld state taxes for her military pay.

PA does require orders showing where an active military member is stationed. In my son's case, while he was still at USNA, he asked the registrar to produce a letter. It was actually a form letter which I am sure all the service academies have. The letter states that the Cadet/Midshipman is considered active duty, and it was good for all four years. If she files the PA-40X by mail, she can just include a copy of the letter with her amended return. If she wants to file online via myPATH, she will be able to upload the letter as an attachment.

This is the part she (and I struggle with). I want there to be a box to check to indicate military. The PA form has no such box. It seems strange to write '0' as income --- the line asks for the number in a certain box of the W2. It does not ask if you are military, where you earned it, etc. For now, she has paid PA tax and the local tax. I do think we will go back in May and file amended returns. I hate the thought of getting a tax accountant to do this -- the reality is that right now it is less than $500 -- I bet the tax accountant would charge $200 to file on her behalf.

 

[RetiredVeteran]

This is the part she (and I struggle with). I want there to be a box to check to indicate military. The PA form has no such box. It seems strange to write '0' as income --- the line asks for the number in a certain box of the W2. It does not ask if you are military, where you earned it, etc. For now, she has paid PA tax and the local tax. I do think we will go back in May and file amended returns. I hate the thought of getting a tax accountant to do this -- the reality is that right now it is less than $500 -- I bet the tax accountant would charge $200 to file on her behalf.

Most bases, and I am sure the academies as well, have a tax rep to offer free tax assistance to include helping file taxes. Military One Source also offers free assistance for taxes. Your cadet can call and be connected to a tax expert familiar with all the unique military tax situations. They are very helpful. It’s free! It’s DoD funded but Coast Guard is also included.

 

[brewmeist]

This is the part she (and I struggle with). I want there to be a box to check to indicate military. The PA form has no such box. It seems strange to write '0' as income --- the line asks for the number in a certain box of the W2. It does not ask if you are military, where you earned it, etc. For now, she has paid PA tax and the local tax. I do think we will go back in May and file amended returns. I hate the thought of getting a tax accountant to do this -- the reality is that right now it is less than $500 -- I bet the tax accountant would charge $200 to file on her behalf.

It seemed weird to me at first, but it's all legit.

You can refer to this link from PA https://www.pa.gov/agencies/revenue...rmation/personal-income-tax/military-pay.html. Look at the dropdown under "Is military service performed outside Pennsylvania subject to PA personal income tax? That section is where it is stated that any military pay earned outside PA is not included on Line 1a.

Remember, this is for active military pay outside of PA only. My son did some side work tutoring for Sylvan while waiting to start his next phase of flight school. That income is included on PA-40.

There is no need for an accountant. The PA-40X can be filled out fairly quickly. It's really not that involved.

 

[GrilledCheese94]

Although my service was quite some time ago ('87-'99), I remained a resident of PA the entire time and was never stationed in PA. Even when stationed in NJ, I was careful to not take up residence in PA so that I wouldn't have to pay PA state income taxes.

I would think (and I could be wrong) that local command Disbursing Offices (or their modern equivalent) that actually process pay would be the starting point for making sure the appropriate state of residence is declared and that the appropriate tax laws apply.

Someone (maybe within a consolidated DFAS) prepares W-2s for individual servicemembers and that seems to be the logical starting point regarding inquires. If there's no W-2 generated, there's no one (in this case, both federal and state) getting notified that there might be a tax to pay!

SA MIDN/Cadets are in a different category than their N/ROTC counterparts due to their pay status. My son is NROTC scholarship and he receives the non-taxable stipend but will receive a W-2 for CORTRAMID since he'll be on orders and will get a little chunk of change that will count as taxable income - in his case, federal only since he maintains his PA residence while attending school in MA.