Oh my gosh this is complicated. Please help me if you can on the below questions...
Background: So I'm doing my grandson's taxes. He entered the military in California. He was stationed in California for 10 months and got orders and his NEW Permanent Duty Station for the next 3 years is Hawaii. He and his wife have chosen to keep California as their Home of Record and State of Legal Residency (SLR). And your SLR is considered your Domicile as long as you are active duty.
I'm using the desktop version of Turbo Tax. So now for the questions:
1) When Turbo Tax asks the question on the personal information page, it asks for State of Residency, do they mean the state where you currently live (Hawaii) rather than your military State of Legal Residency (Calif)? So in my case, should I enter Hawaii as the State of Residency since he is now stationed there? OR, use California even though he moved to Hawaii and is stationed there.
2) In the State section, it asks number of days he was in California for any purpose (in his case 270). Then it takes me to a Nonresident Adjustments page to divide my income between CA and other places. It tells me to enter the CA amount earned while residing in CA but then states I should only enter California active military as CA income while domiciled in CA (all year long in my grandson's case) and stationed in Calif (9 months only in grandson's case). So is that saying that you don't report (and therefore pay any income taxes) on ANY military income for months stationed outside Calif. Meaning next year, if he is stationed in Hawaii and doesn't return to Calif at all, he would pay NO California income taxes on any of his Active Military earnings?
3) And last question. So if California doesn't consider the money California sourced income as it treats you as a non-resident when stationed in Hawaii as a Permanent Duty Station, what about Hawaii? I found this on the Hawaii income tax site: Is all of my income exempt from Hawaii income taxes? Not necessarily. If you are a nonresident of Hawaii, you do not have to pay Hawaii income tax on the wages you earn for serving on active duty. The wages earned for serving on active duty are taxable in the state where you are a resident.
SO.... California says you don't pay taxes on active military earnings when stationed outside of Calif. Hawaii says you don't pay Hawaii taxes unless you are a resident BUT you retain your residence as where you enlisted, right? This seems to say that you would pay NO State Income Tax on active military duty earnings in EITHER Hawaii or California. Am I missing something?
