box 12 of corrected w2 in Oklahoma identifies income as military pay

[pbandjb99]

I am retired military. I am currently a DOD civilian. I was station in Germany for 7 years. I moved to Oklahoma in May/June 2018. I was a Florida resident before arriving in Oklahoma. I have received a corrected W2 with the moving expenses paid on my behalf from Germany to Oklahoma. I have a two part question.  Is the income on the corrected w2 since it was during the transition to Oklahoma is it declared or considered as Oklahoma income? I was only a part year resident in Oklahoma 2018. As I was not am Oklahoma resident at the time or was transitioning to be a resident.  If it was considered Oklahoma income.  Then, the w2 block 12  causes Turbotax to mark this a military income, which is not taxed.  However, I am not active duty, I am retired and a DOD civilian.  Is this correct or an error in Turbo tax?

[DanielV01]

It could be (and probably is) correct.  Civilian pay is not military (active-duty) pay, even on behalf of the Department of Defense.  However, if you were still in the military in Germany with active-duty income, then your PCS move is, in fact, considered to be your "last" active-duty assignment and is also categorized as military pay.  If these are your facts and circumstances, then the income from the move should be exempt from Oklahoma tax, since you were a Florida resident prior to arriving in Oklahoma (and Oklahoma would exempt military pay anyways).

However, even if it is not the case, there is a good argument that the income is exempt (or at least partly-exempt) from Oklahoma tax.  Since you were considered a Florida resident while in Germany, the pay for the move to Oklahoma is either entirely Florida income, or at the very least split 50/50 between Oklahoma and Florida (50% income for leaving Florida, and 50% for moving to Oklahoma).  

Your question states that you were stationed in Germany, which sounds like you were, in fact, active duty.  Unless there is additional information, I believe TurboTax has calculated this correctly and the income is exempt from Oklahoma tax.

[pbandjb99]

Thank you for your input.  To provide additional details.  I retired from the Air Force in 2007.  I was a civilian working for the U.S. military in Germany, I pcs'd to Germany in 2011 on military orders.  When I pcs'd to Germany, I was a Florida resident.   In 2018, I pcs'd from Germany to Oklahoma, to work at Tinker AFB.   After arriving to Oklahoma, my residency changed to Oklahoma.   I recently received a corrected w2 to reflect taxable moving expenses due to the change in 2018 tax law.   I am trying to figure out if indeed the corrected w2 should be considered taxable in Oklahoma.  I understand it maybe at least 50%.  I guess my confusion comes from the turbo tax program that changes the questions using data in block 12 of the w2, it identifies me as active duty, in fact I am a DOD civilian during this time.  The check box that the turbotax identifies makes a change from owing to a refund.  I just want to do it right.  Thank you in advance.

[DanielV01 · Accepted solution]

@pbandjb99.  Given this situation, you may need to double-check certain entries in the program.  First, go through the W-2 screens.  The very last screen should ask:  Do Any of These Special Circumstances Apply?  Make sure that the box "Active Duty Military Pay" is unchecked.  If you do not receive the screen, this could be because you set your profile at the Personal Information section to state that you are still a servicemember.  Review your entries to ensure that you are not associated with the program as an active-duty servicemember since your role is now civilian.  

However, it may well be that the income still is not taxed in Oklahoma.  First of all, if you are claiming the Foreign Income Exclusion, (since you were outside of the United States for at least 330 days of the prior 365 days before returning to the United States), the income may be excluded from Oklahoma regardless.  (I did not see any information either in the Oklahoma tax manuals or on their Tax Commission website to either confirm or deny this).  Also, this is wage/salary income, and not a reimbursement.  Since this wage/salary was made while you were still a Florida resident, it could well be that even if the income is not excluded for Federal purposes, it still is excluded from Oklahoma income.  And, again, even if Oklahoma insists that this income should be reported to Oklahoma, only 1/2 of it should be taxable to Oklahoma.  I did search to see how Oklahoma treats it and did not find anything conclusive.

Given the above, if you make the needed entry changes but TurboTax still excludes the income, I believe that it is being correctly reported.  But keep documentation of your move dates and how and when that moving reimbursement, now considered as wages, was paid to you, in case Oklahoma should ask otherwise.

What I can say is that you did not become an Oklahoma resident until you physically returned from Germany and established residency in Oklahoma.  Prior to that, you were a Florida resident.  Since the income for the move was paid in connection with income paid while you were still a Florida resident, and was not earned in Oklahoma, I would lean to stating that the income should still be excluded from Oklahoma.  However, the income is not excluded under the provision of being active-duty pay, so you do want to make sure that the income is not marked as such in TurboTax.