The Short Answer
Active-duty pay of members in the active or reserve components is fully exempt from Indiana income tax. Your base pay is set by the federal pay table — identical to every other state for your rank and years of service. What actually changes in Indiana is your BAH (averaging $1,100/mo without dependents and $1,400/mo with dependents) and how Indiana treats the taxable portion of your pay.
State tax status: ✓ TAX EXEMPT
2026 Worked Example — E-5, 6 Years, With Dependents in Indiana
Here is how the math actually lands for a mid-career enlisted member stationed in Indiana, built the way I read my own LES. Base pay and BAS are federal; the Indiana BAH figure is the state average.
| Monthly line item | Amount | Taxable? |
|---|---|---|
| Base pay (E-5, over 6 yrs) | $3,874 | Yes (federal + state) |
| BAH with dependents (Indiana avg) | $1,400 | No — tax-free |
| BAS (enlisted) | $476.95 | No — tax-free |
| Gross monthly entitlements | $5,750.95 | — |
| Taxable income (base pay only) | $3,874 | — |
| Est. Indiana state income tax | varies — see notes | — |
Only the $3,874 of base pay is taxable — the $1,876.95 of BAH + BAS is completely tax-free. Run your exact rank, ZIP, and dependency status in the Military Pay Calculator for a precise estimate.
How Indiana Taxes Each Type of Military Pay
Active-Duty Base Pay
Active-duty pay of members in the active or reserve components is fully exempt from Indiana income tax.
Guard & Reserve Drill Pay
Indiana Guard and Reserve pay is covered by the full military pay exemption.
Military Retirement Pay
Military retirement pay is fully exempt from Indiana income tax, and Indiana also offers an additional military-service deduction of up to $5,000.
VA Disability Compensation
VA disability compensation is exempt federally and is not taxed by Indiana.
SCRA & Residency in Indiana
Under SCRA, a nonresident servicemember stationed in Indiana is not taxed by Indiana on military pay.
This is the single most misunderstood rule in military pay. Your home of record / state of legal residence — not your duty station — generally determines who can tax your military pay. Changing it is a deliberate act, not something that happens automatically when you PCS.
Major Military Installations in Indiana
- Naval Surface Warfare Center Crane
- Grissom Air Reserve Base
- Camp Atterbury
BAH is set by the Military Housing Area covering your duty ZIP. Verify your exact rate at the official DoD BAH lookup.
Official Sources
FAQ — Military Pay in Indiana
Does Indiana tax my military base pay?
Active-duty pay of members in the active or reserve components is fully exempt from Indiana income tax.
Is my BAH taxed in Indiana?
No. BAH is federally tax-free and is never counted as income for Indiana state income tax, regardless of how Indiana treats base pay.
Does Indiana tax military retirement pay?
Military retirement pay is fully exempt from Indiana income tax, and Indiana also offers an additional military-service deduction of up to $5,000.
I'm stationed in Indiana but my home of record is elsewhere — who taxes me?
Under SCRA, a nonresident servicemember stationed in Indiana is not taxed by Indiana on military pay.