LEGISLATIVE SERVICES AGENCY
OFFICE OF FISCAL AND MANAGEMENT ANALYSIS
FISCAL IMPACT STATEMENT
LS 6692 NOTE PREPARED: Mar 20, 2025
BILL NUMBER: HB 1280 BILL AMENDED: Feb 13, 2025
SUBJECT: Taxation of Military Income.
FIRST AUTHOR: Rep. Gore BILL STATUS: 2
nd
Reading - 2
nd
House
FIRST SPONSOR: Sen. Tomes
FUNDS AFFECTED:XGENERAL IMPACT: State & Local
DEDICATED
FEDERAL
Summary of Legislation: The bill exempts military pay for members of the United States Space Force
(USSF), the United States Public Health Service (USPHS) Commissioned Corps, and the National Oceanic
and Atmospheric Administration (NOAA) Commissioned Officer Corps from the individual income tax. It
exempts military pay earned by members of an active component of the USSF, the USPHS Commissioned
Corps, and the NOAA Commissioned Officer Corps from the individual income tax. It adds members of the
USSF, the USPHS Commissioned Corps, and the NOAA Commissioned Officer Corps for purposes of
eligibility for the income tax deduction for income from military retirement or survivor's benefits.
Effective Date: January 1, 2025 (retroactive).
Explanation of State Expenditures: Department of State Revenue (DOR): The DOR will incur additional
expenses to revise tax forms, instructions, and computer programs. The DOR’s current level of resources
should be sufficient to implement the tax provisions outlined in the bill.
Explanation of State Revenues: The bill extends the current military income tax exemption and military
retirement income tax exemption to the income earned from individuals’ service in the USPHS
Commissioned Corps, the NOAA Commissioned Officer Corps, and the USSF. The provisions in the bill
could reduce state income tax revenues by $25,000 to $50,000 annually beginning in FY 2026. The fiscal
impact could begin in FY 2025 if the taxpayers adjust their withholding in the first half of 2025.
Additional Information - Current statute provides that all military service income is exempt from state income
tax for active duty service members, members of the Indiana National Guard, and members of a reserve unit
of the armed forces. Combat pay is not eligible for a deduction because it is not taxed at the federal or state
level. It also provides a full income tax deduction for military retirement income or survivor’s benefits
received by a taxpayer. The bill extends the above tax benefits to the individual receiving pay and benefits
from the USPHS Commissioned Corps, the NOAA Commissioned Officer Corps, and the USSF.
United States Public Health Service (USPHS): The bill provides that "qualified service income" means wages
that are paid to an individual employed by the USPHS Commissioned Corps. It provides an income tax
HB 1280 1 exemption for wages, retirement income, and survivor’s benefits paid by the USPHS Commissioned Corps.
The USPHS Commissioned Corps is one of the nation’s uniformed services. Officers of the USPHS serve
in agencies across the government as physicians, nurses, dentists, veterinarians, scientists, engineers and
other professionals. Currently there are more than 6,000 professionals serving in 11 professional categories
at about 800 locations in the U.S. and around the world. Currently there are 3 professionals serving in Indiana
that will qualify for the income tax exemption on the wages paid to them by the USPHS Commissioned
Corps. The number of Indiana residents receiving retirement income or survivor’s benefit is not known but
is estimated to be small. Under the bill, all retirement income or survivor’s benefit received by any Indiana
resident from the USPHS Commissioned Corps will be exempt from Indiana income tax.
NOAA Commissioned Officer Corps (NOAA Corps): The bill provides an income tax exemption for wages,
retirement income, and survivor’s benefits received by an Indiana taxpayer and paid by the NOAA Corps
officers. The NOAA Corps is one of the nation’s eight uniformed services. NOAA Corps officers are an
integral part of the National Oceanic and Atmospheric Administration (NOAA), an agency of the U.S.
Department of Commerce. It has about 330 officers that support nearly all of NOAA’s programs and
missions. To the extent that some of these officers are located in Indiana, exempting their income from
Indiana adjusted gross income will result in indeterminable but minimal reduction in state income tax
revenues. It also provides that all retirement income or survivor’s benefits received by any Indiana resident
from the NOAA Corps will be exempt from Indiana income tax.
United States Space Force (USSF): The bill includes wages paid to members of the USSF in the definition
of "qualified military income”. It provides exemption for wages, retirement income, and survivor’s benefits
received by an Indiana taxpayer and paid by the USSF. The USSF was established on Dec. 20, 2019, creating
the first new branch of the armed services since 1947. According to Department of Defense’s personnel data,
currently there are 7 space force professionals serving in Indiana that will qualify for the income tax
exemption on the wages paid to them by the USSF.
Explanation of Local Expenditures:
Explanation of Local Revenues: Because the bill’s provisions will decrease taxable income, counties
imposing a local income tax (LIT) could potentially experience a decrease in revenue from this tax. Any
impact is estimated to be minimal.
State Agencies Affected: Department of State Revenue.
Local Agencies Affected: Local units that receive a local income tax distribution.
Information Sources: United States Public Health Service (USPHS), https://www.usphs.gov/about-us;
NOAA Commissioned Officer Corps https://www.omao.noaa.gov/noaa-corps; United States Space Force,
https://www.spaceforce.mil/ ; Defense Manpower Data Center,
https://dwp.dmdc.osd.mil/dwp/app/dod-data-reports/workforce-reports
Fiscal Analyst: Randhir Jha, 317-232-9556.
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