Information Release

IT 2004-01 Recent Federal Law Change Affecting Military Servicemembers Requires Modification To Year 2003 Ohio Income Tax Return – February 2004

Recently-enacted federal law, Servicemembers Civil Relief Act, requires modifications to Ohio’s year 2003 Ohio income tax return, form IT-1040. Section 511(d) of that act states, "A tax jurisdiction may not use the military compensation of a nonresident servicemember to increase the tax liability imposed on other income earned by the nonresident servicemember or spouse subject to tax by the jurisdiction."

For taxable year 2003, a nonresident servicemember – whether filing a married filing joint return, a head of household return, a married filing separate return, or a single return – can use line 34 of Schedule A on the back side of the year 2003 Ohio form IT-1040 to deduct her/his military compensation and all other types of the nonresident servicemember’s income not sitused to or earned in Ohio. Examples of other types of such income not sitused to or earned in Ohio generally include interest income, dividend income, capital gains from the sale or exchange of stocks and bonds, and lottery prizes and awards other than prizes and awards paid by the Ohio Lottery Commission. Examples of income sitused to or earned in Ohio, which the nonresident servicemember cannot deduct, include the following: wages earned in Ohio from employment other than employment as a servicemember with any of the armed services, capital gains from the sale of real estate located in Ohio and from the sale of tangible property located in Ohio, and prizes and awards paid by the Ohio Lottery Commission.

The Ohio Department of Taxation has revised the year 2003 Ohio form IT-1040 and instructions to reflect this change. You can view the revisions to the form and instructions by visiting our Web site and selecting "forms>Ohio income tax > individual " from our home page.  Nonresident servicemembers claiming this deduction on line 34 on an Ohio income tax form as the form previously existed should insert on that line, "Nonres. servicemembers deduction."

Nonresident servicemembers can continue to claim the personal exemption deduction and personal exemption credit – even if the nonresident servicemember is filing a married filing joint return with her/his spouse and none of the nonresident servicemember’s income is included in Ohio adjusted gross income. However, for nonresident servicemembers who are filing a married filing joint return and who want to claim the married filing joint credit provided under Ohio Revised Code section 5747.05(G), the Ohio adjusted gross income must include, for each spouse, at least $500 of income other than interest, dividends and distributions, royalties, rents, and capital gains. Because of the deduction provided by the new federal law, most nonresident service members will no longer be able to claim this credit.

In addition, the Ohio Revised Code section 5747.05(A) nonresident credit cannot be claimed in connection with any portion of the nonresident servicemembers’s income deducted on line 34 of the year 2003 Ohio income tax return. Because of the deduction provided by the new federal law, most nonresident servicemembers will no longer be able to claim this credit, either.

If you have questions regarding how this new law affects "e-filing" of Ohio income tax returns, please email us and choose "electronic filing" from the "subject category" or call 614/433-7773. If you have questions regarding how this new law affects the filing of paper Ohio income tax returns, please email us and choose "forms" from the "subject category" or call 614/433-7606.

If you have other questions please call 1-800-282-1780 (Ohio Relay Services for the Hearing or Speech Impaired: 1-800-750-0750), or access the department’s Web site (tax.ohio.gov) and e-mail your questions to us.