Income Tax Topics: Military Servicemembers                                             

Several  special  rules  apply  in  determining  the  Colorado    Residency 
income tax liability of an active duty or retired military 
servicemember.  Whether  and  how  a  servicemember’s             Special  rules  under  both  state  and  federal  law 
income is taxed depends largely on the servicemember’s            determine  the  states  of  residency  for  military 
state of legal residence. Additionally, military retirement       servicemembers  and their       spouses. Residency 
benefits may be fully or partially exempted from Colorado         determines,  among  other  things,  whether  a  state  can 
taxation. This publication provides information regarding         impose income tax on a servicemember’s military pay. 
various Colorado tax rules that apply to active duty and 
retired military servicemembers. 
                                                                  Military servicemembers 
This  publication  is  designed  to  provide  general 
guidance regarding certain tax rules and requirements             For state income tax purposes, a servicemember does 
applicable  to  military  servicemembers  and  to                 not lose or acquire residency in a state  as a result of 
supplement  guidance  provided  in  the     Colorado              being physically present or absent in that state solely in 
Individual  Income  Tax  Guide.  Nothing  in  this                compliance  with  military  orders.  Consequently,  a 
publication  modifies  or  is  intended  to  modify  the          servicemember  will  generally  retain  their  state  of 
requirements  of  Colorado’s  statutes  and  regulations.         residency  from  when  they  entered  military  service, 
Taxpayers are encouraged to consult their tax advisors            regardless  of  where  they  are  stationed,  unless  they 
for guidance regarding specific situations.                       take steps to change their state of residency.  

                                                                  A servicemember who is a Colorado resident does not 
                                                                  lose their Colorado residency simply because they  are 
Military servicemembers 
                                                                  stationed outside of Colorado. A servicemember who is 
                                                                  not  a  Colorado  resident  does  not  become  a  Colorado 
In general, a military servicemember is any member of 
                                                                  resident simply because they are stationed in Colorado. 
the Army, Navy, Air Force, Marine Corps, Space Force, or 
Coast Guard. For the purpose of determining residency 
                                                                  Generally,  if  a  military  servicemember  changes  their 
under federal law, as discussed in the following section 
                                                                  state of legal residence, they will certify the change by 
of  this  publication,  but  not  with  respect  to  any  other 
                                                                  filing Department of Defense Form 2058, which states, 
guidance  presented  in  this  publication,  military 
                                                                  “the  formula  for  changing  your  State  of  legal 
servicemembers include members of the Commissioned 
                                                                  residence/domicile is simply stated as follows: physical 
Corps  of  the  National  Oceanic  and  Atmospheric 
                                                                  presence in the new State with the simultaneous intent 
Administration  and  the  Commissioned  Corps  of  the 
                                                                  of making it your permanent home and abandonment of 
Public Health Service. 
                                                                  the  old  State  of  legal  residence/domicile.”  However, 
                                                                  see page 3 of this publication for information regarding 
                                                                  the  reacquisition  of  Colorado  residency  by  military 
                                                                  servicemembers. 

                                                                1  

                                                                                                  Revised June 2021 

Income Tax Topics: Military Servicemembers 

Servicemembers’ spouses                                             Resident servicemembers and spouses 

A  servicemember’s  spouse  may  elect,  for  income  tax           In  general,  the  income  of  any  Colorado  resident  is 
purposes,  to  use  the  same  state  of  residence  as  the 
                                                                    subject to Colorado taxation, regardless of whether the 
servicemember.  If  a  servicemember  is  not  a  Colorado 
                                                                    Colorado resident is       a    servicemember         or a 
resident, and is instead a resident of another state, his 
                                                                    servicemember’s  spouse.  The  military  compensation 
or  her  spouse  can  elect  to  also  be  a  resident  of  that 
                                                                    earned by a servicemember who is a Colorado resident is 
state and not a resident of Colorado.  No specific step 
is  required  to  make  this  election,  but  any  spouse           generally subject to Colorado income tax, regardless of 
making an election not to be a Colorado resident should             the  state  in  which  the  servicemember  is  stationed. 
provide  to  their  employer  a  completed  Affidavit  of           However, see page 3 of this publication for information 
Exemption  for   the  Nonresident      Spouse      of a             about  the  income  tax  subtraction  allowed  to 
Servicemember (DR 1059) and mark the applicable box on              servicemembers who reacquire Colorado residency. 
the Part-Year  Resident/Nonresident  Tax  Calculation 
Schedule (DR 104PN) filed with their Colorado income tax            Every  Colorado  resident  is  required  to  file  a  Colorado 
return to indicate their nonresidency.                              income tax return if they are required to file a federal 
                                                                    income tax return or have otherwise incurred a Colorado 
Additionally, if a servicemember and his or her spouse              tax liability.  
have  as  their  shared  state  of  residence  a  state  other 
than  Colorado,  the  spouse  also  does  not  become  a            If any Colorado resident receives income from sources in 
Colorado  resident  simply  because  he  or  she  is  in            another state and the income is taxed by both by that 
Colorado  solely  to  be  with  the  servicemember  who  is         state  and  Colorado,  the  Colorado  resident  can  claim  a 
serving in compliance with military orders.                         credit on their Colorado income tax return for such taxes 
                                                                    paid to the other state. See FYI Income 17 for additional 
Servicemembers stationed outside the U.S.                           information about credits for taxes paid to other states. 

Any servicemember whose domicile is Colorado and who 
spends  at  least  305  days  of  the  tax  year  stationed  on     Military family relief fund grants 
active  military  duty  outside  of  the  United  States, 
                                                                    An  income  tax  subtraction  is  allowed  for  any  amount 
including its possessions may, but is not required to, elect 
for  that  tax  year  to  be  treated  as  a  nonresident  of       received  as  a  grant  from  the  Military  Family  Relief 
Colorado for Colorado income tax purposes. The 305 days             Fund,  to  the  extent  that  it  is  included  in  federal 
do  not  have  to  be  consecutive,  but  all  305  days  must      taxable          income.        Please                visit 
occur within the tax year for which the election is made.           DMVA.Colorado.gov/services for additional information 
                                                                    about the fund. 
The spouse of any servicemember who makes the election 
to  be  treated  as  a  nonresident  may  also  elect  to  be        
treated  as  a  nonresident  for  the  tax  year  if  the  spouse 
accompanies the servicemember for at least 305 days of               
the  tax  year  while  the  servicemember  is  stationed  on 
active military duty outside of the United States.                   

A  servicemember  and  spouse,  if  applicable,  make  the           
election  to  be  treated  as  nonresidents  of  Colorado  by 
checking  the  applicable  box  on  the       Part-Year              
Resident/Nonresident  Tax      Calculation    Schedule 
(DR 104PN) filed with their Colorado income tax return. 

                                                                  2   
 
                                                                                                             Revised June 2021 

Income Tax Topics: Military Servicemembers  

                  Reacquisition of Colorado Residency 

 Under certain circumstances, a servicemember who is a Colorado resident can claim a subtraction on  the Colorado 
 Subtractions  from  Income  Schedule (DR 104AD)  of  their  Colorado  income  tax  return  for  any  compensation  they 
 receive  for  active  duty  military  service  that  is  included  in  their  federal  taxable  income.  The  subtraction  is  not 
 allowed for any other type of income the servicemember may receive during the tax year.  
 A servicemember may qualify for this subtraction only if:  

 ➢ the servicemember’s home of record is Colorado; 

 ➢ while in the military, the servicemember acquired legal residence in a state other than Colorado; and 

 ➢ the servicemember subsequently reacquired Colorado residency. 

 A servicemember claiming this subtraction must include with their Colorado income tax return (1) a form furnished by the 
 military confirming Colorado as their home of record, (2) evidence of their residency in another state, after joining the 
 military, and (3) evidence of their subsequent reacquisition of Colorado residency. 

 Documentation verifying the acquisition of residency in another state, after joining the military, includes: 

 ➢ DD Form 2058, signed by the servicemember, reporting a change in residency to that state; 

 ➢ federal Form W-2, reflecting the servicemember’s residency in that state; 

 ➢ voter registration in that state; 

 ➢ prior notification submitted by the servicemember to Colorado advising of the servicemember’s change in state 
   of legal residence to that state; or 

 ➢ last will and testament indicating the servicemember’s residency in that state.    

 Documentation verifying the reacquisition of residency in Colorado includes: 

 ➢ voter registration in Colorado after reacquiring residency; 

 ➢ Colorado residential property records reflecting the servicemember’s purchase of property in Colorado in 
   conjunction with reacquiring Colorado residency; 

 ➢ motor vehicle records reflecting the titling and registration of a vehicle in Colorado in conjunction with 
   reacquiring Colorado residency; 

 ➢ prior notification submitted by the servicemember to the other state advising of the servicemember’s change in 
   state of legal residence to Colorado; or 

 ➢ last will and testament executed subsequent to reacquiring Colorado residency that identifies Colorado as the 
   servicemember’s state of legal residence. 

                                                    3           
 
                                                                                             Revised June 2021 

Income Tax Topics: Military Servicemembers  

Nonresident servicemembers and spouses                            Extensions allowed to servicemembers 

The  military  wages  of  a  servicemember  who  is  not  a       The  due  dates  for  filing  and  payment  of  Colorado 
Colorado resident are not subject to Colorado taxation,           income  tax  are  extended  for  military  servicemembers 
even  if  the  servicemember  earned  those  wages  while         who  are  serving  in  combat  zones.  Any  return  or 
serving in Colorado.                                              payment a servicemember would otherwise be required 
                                                                  to  file  or  pay  during  such  period  of  service  is  instead 
If  the  spouse  of  a  servicemember  is  not  a  resident  of   due 180 days after the servicemember’s service in the 
Colorado  and  is  in  Colorado  solely  to  be  with  the        combat zone ends.  
servicemember serving in compliance with military orders, 
any income,  such  as       wages or unemployment                 The extension applies with respect to any service in an 
compensation, the spouse earns for services performed in          area  designated  by  presidential  order  as  a  combat 
Colorado are exempt from Colorado income tax and wage             zone. See IRS Publication 3, Armed Forces’ Tax Guide 
withholding.  A  servicemember’s  spouse  who  meets  these       for  a  list  of  areas  designated  by  presidential  order  as 
requirements may provide to their employer a completed            combat zones. 
Affidavit  of  Exemption  for  the  Nonresident  Spouse  of  a 
Servicemember (DR  1059)    to  attest  to  the  spouse’s         Additionally,  any  servicemember  who  notifies  the 
eligibility for exemption from Colorado wage withholding.         Department  that  their  ability  to  pay  any  Colorado 
                                                                  income tax due is materially affected by their military 
If a servicemember who is not a Colorado resident has 
                                                                  service is allowed up to 180 days after termination or 
any  income,  other  than  military  wages,  derived  from 
                                                                  release  from  military  service  to  pay  the  tax.  The 
Colorado  sources,  such  Colorado-source  income  is 
                                                                  servicemember  must  notify  the  Department  to  be 
subject  to  Colorado  taxation.  Colorado-source  income 
                                                                  allowed  an  extension.  No  penalty  or  interest  will 
includes, but is not limited to: 
                                                                  accrue during the extension period. 
 ➢  any other wage income for work performed by the 
    servicemember in Colorado; 

 ➢  income from any business activity conducted in 
    Colorado; and 

 ➢  rental income and capital gains from any real 
    property in Colorado. 

Similarly,  if  a  servicemember’s  spouse  who  is  not  a 
Colorado  resident  has  any  income,  other  than  income 
from  services  performed,  derived  from  Colorado 
sources,  such  Colorado-source  income  is  subject  to 
Colorado  taxation.  See Income  Tax  Topics:  Part-Year 
Residents  and  Nonresidents  for  additional  information 
regarding Colorado-source income for nonresidents. 

If  a  nonresident  has  any  Colorado  source  income,  the 
nonresident must file a Colorado return, regardless of 
whether  such  nonresident  is  a  servicemember  or  the 
spouse of a servicemember.  

                                                                4  
 
                                                                                                      Revised June 2021 

Income Tax Topics: Military Servicemembers 

Retired servicemembers                                             Additional resources 

A  retired  servicemember  may  claim  one  of  two                The  following  is  a  list  of  statutes,  regulations,  forms, 
subtractions  for  all  or  part  of  the  military  retirement    and  guidance  pertaining  to  military  servicemembers. 
benefits  that  are  included  in  their  federal  taxable         This list is not, and is not intended to be, an exhaustive 
income. The subtraction that may be claimed depends                list  of  authorities  that  govern  the  tax  treatment  of 
on the retired servicemember’s age at the end of the               every  situation.  Taxpayers  with  specific  questions 
tax year.                                                          should consult their tax advisors. 

                                                                   Statutes and regulations 
Retired servicemembers under 55 years of age 
                                                                   ➢ § 39-22-103, C.R.S. Definitions.  
If a retired servicemember is under 55 years of age at 
the  end  of  the  tax  year,  they  may  claim  the  military     ➢ § 39-22-110.5, C.R.S. Reacquisition of residency 
retirement  subtraction  on  the  applicable  line  of  the          during active duty military service. 

Colorado  Subtractions    from Income        Schedule              ➢ § 39-22-610, C.R.S. Relief for members of the 
(DR 0104AD)  for  military  retirement  benefits  included 
                                                                     armed forces of the United States. 
in  their  federal  taxable  income,  subject  to  the 
following limitations based on the tax year.                       ➢ Rule 39-22-103(8)(b). Military servicemember 
                                                                     resident individual. 

 Military Retirement Subtraction Limits                            ➢ 50 U.S.C. § 4000. Income taxes. 

          Tax year             Limit                               ➢ 50 U.S.C. § 4001. Residence for tax purposes. 
          2019                 $  4,500 
                                                                   Forms and guidance 
          2020                 $  7,500 
                                                                   ➢ Tax.Colorado.gov 
          2021                 $10,000 

          2022                 $15,000                             ➢ Part-Year Resident/Nonresident Tax Calculation 
                                                                     Schedule (DR 0104PN) 
          2023                 $15,000 
                                                                   ➢ Subtractions from Income Schedule (DR 0104AD) 

Retired servicemembers age 55 or older                             ➢ Affidavit of Exemption for the Nonresident Spouse 
                                                                     of a Servicemember (DR 1059)      

If  a  retired  servicemember  is  at  least  55  years  old  at   ➢ Income Tax Topics: Part-Year Residents and 
the  end  of  the  tax  year,  they  may  claim  the  regular 
                                                                     Nonresidents 
pension and annuity subtraction on the applicable line 
of  the  Colorado Subtractions  from  Income  Schedule             ➢ FYI Income 17: Credit for Income Tax Paid to 
(DR 0104AD)  for  military  retirement  benefits  included           Another State 

in  their  federal  taxable  income.  The  regular  pension        ➢ FYI Income 25: Pension and Annuity Subtraction 
and annuity subtraction is not subject to the limitations 
shown  above,  but  rather  is  subject  to  its  own              ➢ IRS Publication 3, Armed Forces’ Tax Guide 
limitations, discussed in FYI Income 25. 
                                                                   ➢ State of Legal Residence Certificate (DD 2058) 

                                                                 5  

                                                                                                          Revised June 2021