Military families in New Hampshire face specific tax responsibilities that require careful attention to both federal income tax and state obligations. Service members, active duty personnel, and military spouses often encounter questions about residency, gross income reporting, and eligibility for property tax relief. Understanding how these rules apply helps military members reduce confusion when filing an income tax return and planning for financial stability.

The state provides essential tax benefits to support military pay and retirement income, including property tax credit programs, partial property tax exemptions, and relief for qualifying veterans. Federal law also extends protections through exclusions for combat pay in a designated combat zone and disability retirement pay for permanently disabled veterans. These provisions aim to recognize the sacrifices of active duty service members, honorably discharged veterans, and retired military personnel.

This guide offers a structured overview of military compensation, military retirement pay, survivor benefit plan considerations, and the treatment of disability compensation under both federal tax and state tax systems. By examining how adjusted gross income interacts with retirement pay, tax credits, and tax-exempt categories, the article provides clear, practical direction for service members and their families.

Armed Forces and Active Duty Service

Military members follow tax rules that differ from those for civilian taxpayers. Active duty service members face federal income tax law obligations while navigating state income tax considerations. Understanding how active duty pay, allowances, and combat-related compensation are treated is essential for compliance and financial planning.

Active duty service members receive compensation through several categories. While base pay forms the foundation of gross income, many allowances and benefits remain tax-exempt. Military compensation structures cover basic needs without increasing taxable property value or affecting adjusted gross income calculations. Service members in a designated combat zone receive additional protections that reduce taxable income.

• Active Duty Pay is included in gross income for federal income tax purposes. It must be reported on an income tax return, even when stationed outside the state.
  
  
• Basic Allowance for Housing and Basic Allowance for Subsistence are tax-exempt and excluded from federal and state tax reporting.
  
  
• Combat Pay earned in a designated combat zone can be excluded from taxable income. This exclusion applies to enlisted personnel, warrant officers, and commissioned officers subject to federal limitations.
  
  
• Military Compensation Adjustments also include bonuses, reenlistment incentives, and leave allowances. Depending on specific federal rules, some are taxable, while others are tax-free.
  
  
• Retirement Contributions to the Thrift Savings Plan may reduce taxable income, but contributions remain subject to federal tax laws governing retirement savings.

Military members must also consider obligations beyond income tax. Social security taxes apply to active duty pay, ensuring future eligibility for benefits. State income tax laws vary, but New Hampshire exempts most military retirement income while requiring proper documentation of federal taxable wages. Accurate recordkeeping helps service members avoid errors when reporting total income or applying for property tax relief.

The IRS provides tax rules for service members through its military guidance page at IRS Military Tax Information. This resource provides essential information about exclusions, filing requirements, and benefits for active duty service members and their families.

Compliance with both federal and state obligations allows military members to protect their financial stability. By recognizing which categories of military pay are taxable and exempt, service members can prepare accurate income tax returns and claim applicable tax benefits. The following section on residency and domicile rules explains how income reporting responsibilities shift for military members and their spouses.

Military Members and Residency Rules

Military members in New Hampshire often face questions about residency and domicile for tax purposes. Distinguishing between a service member’s state of domicile and their current station determines where income tax must be filed. Residency rules also influence access to property tax relief programs and credits available to military families.

Residency Versus Domicile

Residency is where a person lives at a given time, while domicile is a permanent home for legal and tax purposes. Military members can be stationed away from their domicile without automatically changing residency status. Nonresident service members generally do not owe state income tax in New Hampshire if their permanent home is in another state. Yet, they must maintain proof of domicile through documents such as voter registration or vehicle registration fees.

Income Tax Return Obligations

A service member in New Hampshire must file an income tax return if their gross income reaches federal filing thresholds. Active duty pay is included in total income, although specific allowances remain tax-exempt. Adjusted gross income calculations must include retirement income, capital gains, and other taxable property value categories. Nonresident service members with no domicile in New Hampshire remain exempt from state income tax but must still report federal income tax.

Military Spouses and Residency Relief

The Military Spouses Residency Relief Act extends specific protections to spouses of service members. Spouses may claim the same domicile as the service member, even if they did not live there before marriage. Registered domestic partners may also qualify under specific rules, reducing exposure to unnecessary state tax obligations. These protections help military families simplify filing obligations and avoid duplicate tax returns across multiple states.

Military members who document their domicile and income avoid unnecessary complications during tax year filings. Service members and their families can comply with federal and state tax requirements by keeping organized records and understanding the difference between residency and domicile. The following section explores property tax relief and exemptions available to qualifying veterans, surviving spouses, and disabled service members in New Hampshire.

Property Tax Relief and Exemptions

Property tax relief programs in New Hampshire provide meaningful support for military members, veterans, and their families. These exemptions and credits reduce taxable property value and lower the overall financial burden on households. Understanding eligibility rules and the application process allows qualifying veterans and surviving spouses to access benefits designed to honor military service.

• Property Tax Credit: Honorably discharged veterans and qualifying veterans may receive an annual tax credit against local taxes. The credit amount varies by municipality and applies to the primary residence. Eligible applicants must demonstrate proof of military service and legal residency in New Hampshire.
  
  
• Partial Property Tax Exemptions: Certain veterans qualify for partial property tax exemptions that reduce the taxable property value of their homes. The amount depends on disability percentage ratings or specific service-connected conditions. Applicants must provide certification from the Department of Veterans Affairs to confirm eligibility.
  
  
• Property Tax Deferral: Veterans facing financial hardship may apply for a property tax deferral. This option allows qualifying homeowners to delay property tax payments until the property is sold or transferred. Deferrals ensure that veterans with limited income or retirement pay can maintain ownership of their primary residence without immediate payment obligations.
  
  
• Relief for Disabled Veterans: Disabled and permanently disabled veterans may qualify for substantial property tax relief. Benefits extend to surviving spouses or registered domestic partners of service members who died while in active duty service. Documentation must confirm a total service-connected disability or other qualifying condition.
  
  
• Survivor Benefit Plan Considerations: Families receiving income through the Survivor Benefit Plan may also qualify for exemptions. Combined with other military retirement income, these exemptions ensure that surviving spouses do not face excessive property tax obligations during difficult financial transitions.

The IRS highlights military tax benefits through Publication 3, which covers exemptions and credits relevant to service members' property ownership and domicile (IRS Publication 3—Armed Forces’ Tax Guide). The publication is an authoritative guide for understanding how federal tax rules interact with state-level property tax relief.

Property tax relief programs recognize the sacrifices made by service members and provide long-term stability for military families. Reducing or deferring local taxes ensures that disabled veterans, surviving spouses, and qualifying veterans maintain secure housing. The following section explains how gross income and military pay interact with income tax return obligations in New Hampshire.

Gross Income and Military Pay

Military members in New Hampshire must understand how gross income is calculated and which parts of their military pay are taxable. Federal and state rules treat military compensation differently, making it essential to identify what counts toward adjusted gross income. Service members who accurately report their total revenue on an income tax return avoid compliance problems and ensure proper access to tax benefits.

Gross income includes a broad range of earnings. Base pay is always included in total revenue and subject to federal income and social security taxes. In contrast, specific allowances and benefits qualify as tax-exempt and are excluded from federal and state tax reporting. Knowing which forms of military compensation are included or excluded helps service members prepare a correct tax return.

• Base Pay is the foundation of military income and must be reported as total income on every income tax return.
  
  
• Allowances such as housing and subsistence remain tax-exempt and reduce a household's taxable property value without affecting adjusted gross income.
  
  
• Special Pay Categories include hazardous duty pay, reenlistment bonuses, and deployment stipends. Some are taxable under federal tax rules, while others are excluded.
  
  
• Capital Gains and Other Income from property sales or investments are included in gross income and must be reported with retirement pay or military retirement income.
  
  
• Retirement Contributions through the Thrift Savings Plan or similar programs may lower taxable income but still require federal reporting.
  
  
• Disability compensation linked to a total service-connected disability is excluded from gross income and treated as tax-free.

Military pay affects federal filings and state-level obligations. Although New Hampshire does not impose a broad state income tax on wages, residents may face reporting requirements for interest, dividends, and capital gains. Retired service members should evaluate how military retirement pay, disability retirement pay, and survivor benefit plan income fit into gross income calculations. These details determine whether total income triggers federal tax liability or qualifies for exemptions.

Understanding the structure of military compensation creates confidence in meeting income tax return obligations. Service members who accurately separate taxable and tax-exempt categories safeguard eligibility for credits and deductions while avoiding disputes. The following section explains how military retirement pay and disability benefits interact with both federal income tax and state exemptions in New Hampshire.

Military Retirement Pay and Disability Benefits

Military retirement income provides long-term financial support for service members and military households. The treatment of retirement pay, disability compensation, and survivor benefits varies between federal and state tax systems. Retired service members in New Hampshire must understand how different income categories affect their federal income tax obligations and whether exemptions apply at the state level.

The following table compares the primary forms of retirement and disability pay available to military members, highlighting their tax treatment at both the federal and state levels:

Tax Treatment of Military Income (Federal and New Hampshire)

1. Military Retirement Pay

• Federal Tax Treatment: Fully taxable as retirement income.
• New Hampshire State Tax: Tax-exempt for state purposes.
• Notes: Applies to retired service members and qualifying veterans.

2. Retired Military Pay

• Federal Tax Treatment: Included in adjusted gross income and reported on an income tax return.
• New Hampshire State Tax: Excluded from state income tax.
• Notes: May impact eligibility for federal refundable tax credits.

3. Disability Retirement Pay

• Federal Tax Treatment: Excluded if based on service-connected conditions.
• New Hampshire State Tax: Exempt.
• Notes: Requires disability percentage rating confirmed by the Department of Veterans Affairs.

4. Survivor Benefit Plan Income

• Federal Tax Treatment: Taxable to the beneficiary at the federal level.
• New Hampshire State Tax: Exempt.
• Notes: Provides continued support for spouses or registered domestic partners.

5. Military Retired Pay with Disability Compensation

• Federal Tax Treatment: Taxable only on the retirement portion.
• New Hampshire State Tax: The disability portion is tax-free.
• Notes: Benefits extend to permanently and totally disabled veterans.

Retirement pay interacts with several other financial factors. Capital gains from investments or property sales may combine with military retirement income to determine total income for federal tax purposes. Disability compensation linked to a total service-connected disability is excluded entirely from gross income and remains tax-free. Survivor Benefit Plan payments are subject to federal tax and offer financial support for spouses and dependents.

Service members should also consider how contributions to the Thrift Savings Plan affect their adjusted gross income and retirement planning. While contributions may reduce taxable property value for federal reporting, withdrawals are taxed when taken during retirement. Retired service members who understand these interactions can prepare more accurate income tax returns and make informed decisions about long-term planning.

Understanding the treatment of military retirement pay, disability retirement pay, and survivor benefit plan benefits helps military families maintain compliance and financial security. Service members can better prepare for federal and state tax requirements by recognizing which income categories are taxable and exempt. The following section focuses on how disabled veterans can access specific tax relief programs in New Hampshire.

Disabled Veterans and Tax Relief

Disabled veterans in New Hampshire may qualify for property tax relief and exemptions that reduce or remove local tax obligations. These programs aim to recognize military service while supporting those with permanent or total disabilities. Eligibility depends on disability percentage, service connection, and residency requirements.

Totally Disabled Veterans

• Eligibility: Veterans deemed totally disabled due to service-connected conditions may qualify for specific tax relief programs. Certification must confirm a total service-connected disability.
  
  
• Property Tax Relief: Local tax authorities may exempt the primary residence of disabled veterans from property taxes.
  
  
• Family Protections: Benefits may extend to surviving spouses or registered domestic partners of veterans who died during active duty service.

Permanently Disabled Veterans

• Eligibility: Permanently disabled veterans who do not meet the criteria for total disability may still receive property tax relief. Documentation from the Department of Veterans Affairs is required to verify disability status.
  
  
• Partial Exemptions: These veterans may qualify for partial property tax exemptions that reduce the taxable property value of their homes.
  
  
• Income Considerations: Disability compensation remains tax-free at the federal level and is excluded from gross income.

Qualified Disabled Veterans

• Eligibility: Veterans who meet state residency requirements and hold an honorable discharge may be considered qualified disabled veterans.
  
  
• Credits and Deferrals: Some may qualify for property tax deferral programs, easing the burden of annual payments.
  
  
• Additional Relief: Veterans may also be eligible for state-level tax credits or refundable tax credit programs, depending on their income tax return filings.

Survivor and Dependent Benefits

• Surviving Spouses: A surviving spouse or registered domestic partner may continue receiving property tax relief if the veteran met eligibility requirements at the time of death.
  
  
• Survivor Benefit Plan: Families receiving survivor benefit plan income may combine those benefits with local exemptions to support long-term property stability.
  
  
• Continuing Support: These programs safeguard surviving family members from unexpected property tax burdens.

Disabled veterans and their families benefit from various property tax relief measures to support financial stability. Qualified veterans can access exemptions that reduce taxable property value and protect their primary residence by confirming eligibility and maintaining accurate records. The following section addresses tax credits and refundable benefits available to military members and veterans in New Hampshire.

Tax Credits and Refundable Benefits

Military members in New Hampshire may qualify for a range of tax credits that reduce overall liability and provide meaningful financial relief. Credits apply at the federal and local levels, and some may be refundable, returning money to families even if no tax is owed. Understanding how these programs interact with adjusted gross income and taxable property value is essential for accurate reporting on an income tax return.

Refundable credits can be especially beneficial for families with limited income. When combined with military retirement pay or disability compensation, refundable credits ensure that service members and veterans maintain access to essential tax benefits. Many programs extend eligibility to honorably discharged veterans and qualifying veterans who meet residency and service requirements.

• Earned Income Credit (EIC): Military members may elect to include combat pay in total income for EIC calculations, potentially increasing the refundable credit.
  
  
• Child Tax Credit: Depending on their adjusted gross income and number of dependents, families may qualify for a refundable portion of this credit.
  
  
• Property Tax Credit: Local programs may offset annual property taxes for qualifying veterans and surviving spouses, reducing the taxable property value of a primary residence.
  
  
• Refundable Tax Credit Programs: Federal and state refundable tax credit initiatives ensure that low-income and permanently disabled veterans remain supported.
  
  
• Special Considerations for Retirement Income: Retired military pay may affect credit eligibility when combined with survivor benefit plan payments or capital gains.

Nonrefundable credits also provide valuable support. Although these credits cannot generate a refund, they directly reduce the amount of federal tax or state tax owed. Credits for vehicle registration fees or specific local taxes may also apply, depending on circumstances. Service members maximize tax relief and reduce long-term obligations by combining refundable and nonrefundable tax credits.

The IRS provides comprehensive coverage of credits and extensions for military families through its official newsroom, including details on combat zone relief and credit eligibility (IRS Newsroom—Military Tax Breaks). This resource outlines how active-duty and retired service members can properly claim available credits.

Tax credits and refundable benefits provide military families with essential financial stability during and after active duty. By identifying eligibility for both federal and state programs, veterans and their families strengthen financial planning while ensuring accurate income tax return filings. The following section addresses retirement planning tools, including the Thrift Savings Plan and standard deduction strategies.

Retirement Planning Tools for Service Members

Planning for retirement requires military members to consider federal and state tax obligations. Retirement strategies should include contributions to long-term savings accounts, understanding how income is taxed, and coordinating military retirement pay with other benefits. Service members who begin preparing early strengthen their financial security while reducing tax burdens during retirement years.

Step 1: Contribute to the Thrift Savings Plan

The Thrift Savings Plan offers an effective way for service members to save for retirement. Contributions reduce taxable income in the current tax year and grow tax-deferred. Withdrawals in retirement are subject to federal income tax, but they provide consistent income alongside military retirement pay.

Step 2: Coordinate Retirement Pay and Social Security Taxes

Military retirement pay is taxable for federal income tax purposes but is exempt from New Hampshire state income tax. Service members must still account for social security taxes paid during active duty service, which build eligibility for future retirement benefits. Combining these streams of retirement income ensures steady support for retired service members.

Step 3: Apply the Standard Deduction and Credits

When filing an income tax return, service members should apply the standard deduction and evaluate eligibility for refundable tax credit programs. Adjusted gross income, including retirement pay, capital gains, and other sources of income, determines credit availability. Careful planning helps service members make the most of both deductions and credits.

Step 4: Manage Capital Gains and Property Holdings

Retired service members may face capital gains tax when selling investments or property. Proceeds must be reported as part of total income and may increase overall federal tax liability. Accurate recordkeeping supports correct reporting and helps prevent errors when combining capital gains with military retirement income.

Step 5: Plan Around State Tax Exemptions and Deferrals

Although New Hampshire does not tax retirement income, property tax deferral programs and exemptions for qualifying veterans influence long-term planning. Veterans with total service-connected disabilities or survivor benefit plan payments may be eligible for substantial property tax relief. Integrating these benefits helps financially stabilize permanently disabled veterans and their families.

Military retirement planning combines federal tax rules with state-level exemptions and credits. Service members build retirement strategies using the Thrift Savings Plan, applying the standard deduction, and managing income sources. The following section answers common questions military families ask about income tax, property tax relief, and residency requirements.

Frequently Asked Questions

Do active duty service members pay state income tax in New Hampshire?

Active duty service members do not pay state income tax on wages in New Hampshire, since the state does not tax earned income. However, they must still file a federal income tax return reporting active duty pay as part of gross income. Allowances such as housing or subsistence are tax-exempt, but retirement income, capital gains, and interest may still affect total income calculations.

How is military retirement pay treated for tax purposes?

Military retirement pay is subject to federal income tax and must be included in adjusted gross income on a tax return. New Hampshire exempts military retirement income from state tax, providing meaningful relief for retired service members. Retired military pay, disability retirement pay, and survivor benefit plan payments must be carefully reported to ensure compliance while taking advantage of available exemptions and tax benefits.

What property tax relief options exist for disabled veterans?

Disabled veterans in New Hampshire may qualify for property tax relief programs that reduce or eliminate taxable property value. Totally disabled veterans with a total service-connected disability often receive full exemptions for their primary residence. Permanently disabled veterans may access partial property tax exemptions or deferral options. These programs extend to surviving spouses and registered domestic partners, ensuring financial stability for qualifying veterans and their families.

Can a military spouse or registered domestic partner claim residency relief?

Military spouses and registered domestic partners may qualify for residency protections under federal and state law. The Military Spouses Residency Relief Act allows spouses to maintain domicile in one state while accompanying active duty service members stationed elsewhere. This rule helps families avoid filing multiple state income tax returns. Combined with tax-exempt allowances and local credits, these protections simplify filing obligations for military members and their households.

How does serving in a designated combat zone affect income reporting?

Service members serving in a designated combat zone may exclude combat pay from federal income tax, reducing their adjusted gross income on an income tax return. The exclusion applies to enlisted personnel, warrant officers, and commissioned officers within federal limits. Disability compensation remains tax-free, and retirement income is unaffected. These exclusions provide tax relief to military members deployed overseas during the tax year.