Colorado Military Filing Information
This publication ( Income 21-Military Service Persons) covers Colorado income taxation of current military personnel and those collecting military retirement benefits. A person in the military service remains a resident of the state in which he/she resided at the time he/she entered the service unless he/she declares residency in another state. [Reg. 39-22-103 (8)] The serviceperson would declare residency in another state by changing his/her residency with the "Consolidated Base Personnel Office" or "Military Pay Office." Only the serviceperson’s home state may tax his/her military income. Every serviceperson must have a home state.
A "resident" is a person who considers his/her home state to be Colorado.
A "nonresident" is a person who considers his/her home state to be another state.
A "part-year resident" is a person who considers himself/herself a resident of Colorado for part of the year and a nonresident for the other part of the year.
A serviceperson who is a Colorado full-year resident is taxed in the same manner as any other Colorado resident. Colorado resident servicepersons are those who are Colorado residents when they enter the service or those who are from another state and who choose to become Colorado residents.
A nonresident serviceperson is not required to report his/her military income to Colorado. However, if the serviceperson earned nonmilitary Colorado income, this income must be reported to Colorado for income tax purposes. The serviceperson must pay Colorado tax on:
• nonmilitary Colorado salaries
• nonmilitary Colorado wages
• nonmilitary Colorado tips
• nonmilitary Colorado commissions
• income from a Colorado business
• income from rents, royalties and/or gains from the sale of tangible personal property or real property located in Colorado
He/she would not report income from interest or dividends.
Colorado tax for nonresidents shall be what the tax would have been were they full-year residents with the tax apportioned in the ratio of their Colorado adjusted gross income to their modified federal adjusted gross income. See the Colorado 104 booklet for detailed instructions.
The Colorado income tax filing status (joint or separate) must conform with the status used for federal income tax filing purposes. For example, if a taxpayer and spouse filed a joint federal return, they must file a joint Colorado return. If a taxpayer and spouse filed separate federal returns, they must file separate Colorado returns.
DETERMINING RESIDENT AND NONRESIDENT SPOUSE'S COLORADO TAX
The couple will determine their Colorado tax by computing what the tax would have been if they were both full year residents. They will then apportion this tentative tax in the ratio of the income taxable in Colorado to their total income (as modified by their Colorado additions and subtractions). The income taxable in Colorado will include all of the income of a full year resident spouse plus any nonmilitary income earned in Colorado by a nonresident spouse. This tax calculation is performed on the 104PN schedule that is attached to the Colorado Individual Income Tax Return Form 104.
REACQUISITION OF RESIDENCY DURING ACTIVE MILITARY SERVICE
Beginning on or after January 1, 2016, an active duty serviceperson whose home of record is Colorado and whose state of legal residency is any state other than Colorado may reacquire legal residence in Colorado if at least one of the following five criteria are met. "Home of record" is the place one was living when they entered or re-enlisted in the military. An individual must:
Register to vote in Colorado,
Purchase residential property or an unimproved residential lot in Colorado,
Title and register a motor vehicle in the state,
Notify the state of the individual’s previous legal residence and the intent to make Colorado the individual’s state of legal residence, or
Prepare a new last will and testament that indicates Colorado as the individual’s state of legal residence.
For the tax year that begins on January 1, 2016, and for subsequent tax years, an active duty serviceperson who has reacquired residency in Colorado may:
Claim a subtraction on the Colorado individual income tax return of an amount equal to any compensation
received for active duty service in the armed forces, to the extent that the compensation is included in federal taxable income,
Not file an individual income tax return with the State of Colorado if the individual’s only source of income is compensation that is subtracted from federal taxable income, and
Elect not to deduct or withhold taxes from the individual’s wages if the individual’s withholding certificate
indicates that the compensation is eligible to be subtracted from the Colorado income tax return.
SERVICEPERSON STATIONED OUTSIDE OF THE UNITED STATES
A serviceperson who is a full-year Colorado resident who spends at least 305 days of the tax year OUTSIDE of the 50 state boundary of the United States of America while stationed outside of the United States of America for active military duty, may file as a nonresident on their Colorado income tax return. The serviceperson's spouse may also file as a nonresident if he or she accompanies the serviceperson outside of the country for at least 305 days of the tax year while they are stationed there on active military duty. A serviceperson or their spouse who meets the above criteria to file as a nonresident are not required to do so and may continue to file as a Colorado resident if they wish.
SERVICEPERSON SERVING IN A COMBAT ZONE
Active duty pay earned in a combat zone that qualifies for the federal tax exemption is not subject to Colorado income tax. However, to the extent income is included in federal taxable income, Colorado tax will also be due on the income.
Colorado law allows military and support personnel stationed in a combat zone as declared by the president to postpone filing and paying state income taxes until 180 days after their assignment in the combat zone ends. Interest and penalty are deferred during this period. Because most Colorado taxpayers receive a refund, affected taxpayers may want to plan ahead to authorize someone else to file their income tax return for them via a power of attorney, Form DR 0145. If the return is filed under this 180 day extension, write the name of the applicable combat zone across the top of the income tax return, Form 104.
TAXATION OF MILITARY RETIREMENT BENEFITS
Persons who were 55-64 years of age as of Dec. 31 may exclude up to $20,000 of their military retirement benefits received during the calendar year. Persons who were 65 years of age or older as of Dec. 31, may exclude up to $24,000 of their military retirement benefits received during the calendar year.
ACTIVE MEMBERS OF THE ARMED FORCES
If you were a Colorado resident when you joined the armed forces, you remain a Colorado resident unless you change it with the
military. This means that you must file as a Colorado resident even if you are stationed outside the state. If you were stationed outside of the United States for at least 305 days during 2016 you may file as a nonresident if you wish.
If you are in Colorado on military orders but are not a Colorado resident, Colorado does not tax your military pay. However, you must file a Colorado return for any other earned income from Colorado sources.
MILITARY SPOUSE RELIEF ACT
Those who were married to a serviceperson at the time of enlistment can also maintain their spouse’s Home of Record for tax purposes, if holding their own job in Colorado. You must complete the DR 1059 and submit it to your employer when you are hired. Submit a copy of the DR 1059 and your military ID card on Revenue Online, with the DR 1778, or, if filing on paper, attached to your return. You must complete a new DR 1059 each calendar year.
For additional information, please see the Colorado state instructions.