Johnson County lawmakers support a bill that would phase in a tax exemption for military pay earned by active-duty service members.
The Indiana House of Representatives recently advanced House Bill 1034, which would phase in a complete state income-tax exemption for military pay earned by active-duty members. The state currently gives an income tax break for the first $5,000 of active duty military pay for all branches aside from the Indiana National Guard, which already has a full military pay exemption.
If it becomes law, the bill would add graduated increases until military pay is fully exempt from income taxes; 25% exemption on military pay in 2024, 50% exemption in 2025, 75% exemption in 2026, and end with a full exemption by 2027.
According to the most recent fiscal impact statement for the bill, it would result in a loss of $3.1 million in the fiscal year 2025 and a loss of $21.8 million in the fiscal year 2028, with the possibility the loss could grow by 3-5% in following years. Municipalities would also see a decrease in income tax collections if the bill becomes law.
The bill passed out of the House last week with unanimous bipartisan support; 97 votes in favor with three members absent on the day of the vote. The bill has been forwarded to the Indiana Senate for consideration.
In a joint statement on the bill, local lawmakers say the bill is both a way to pay back veterans for their service and a way to attract military service members to live in Indiana. State Rep. Michelle Davis, R-Whiteland, and State Rep. Craig Haggard, R-Mooresville, are among the 43 co-authors of the bill, which is authored by State Rep. Randall Frye, R-Oldenburg. Though State Rep. Robb Greene, R-Shelbyville, and State Rep. Peggy Mayfield, R-Martinsville, were not co-authors they showed their support with a vote for the bill.
Davis said the bill rewards military members for their service and makes it known that Indiana is a welcoming place to military service members.
“We can never fully repay those who answered the call and those who are currently serving in the military to protect our great state and nation,” Davis said in the statement. “This is a strong step to ensuring we’re doing everything we can to make Indiana a welcoming state for service members to call home.”
Haggard, a veteran of the U.S. Marine Corps. and Indiana Air National Guard, said military service members can help the state grow.
“Serving in the military takes tremendous commitment and sacrifice,” said Haggard said in the statement. “The traits possessed by our service members are the ones employers seek and what helps our communities thrive.”
The bill could help with Indiana’s skilled labor gap, by filling some of the more than 85,000 open job opportunities, Greene said. With their leadership and technical skills, veterans are ideal candidates to help fill these positions and help drive the workforce, he said.
“Businesses around the state need the skills and experience these service members possess,” Greene said in the statement. “This exemption could incentivize service members to stay in or locate to Indiana.”
Mayfield points out that neighboring states such as Michigan and Kentucky already offer a complete military income tax exemption for residents.
“With other states already offering a complete exemption from military income, we need to offer the same incentives to service members and support those looking to make a home in Indiana,” Mayfield said in the statement. “Active-duty military should be able to keep more of their hard-earned money, and this bill would help to repay our debt to them for their service and sacrifice.”
