Technician Income is Arizona Taxable Income Published Aug. 7, 2011 By Senior Master Sgt. Lance Bonlender 162nd Medical Group TUCSON, Ariz. -- The state of Arizona passed legislation in 2006, House Bill 2795, to provide a subtraction for compensation received for active service by a member of the reserves, National Guard, or armed forces of the United States, to the extent not already excluded from Arizona gross income. HB 2795 extended the exemption for active duty military pay from Arizona income tax to 2007 and later years, and provides a subtraction for National Guard Members and reservists for taxable years 2007 and later. A.R.S. 43-1022. 19. states "To the extent not already excluded from Arizona gross income under the internal revenue code, compensation received for active service as a member of the reserves, the National Guard or the armed forces of the United States, including compensation for service in a combat zone as determined under section 112 of the internal revenue code." Some technicians have misunderstood "active service" to include their air technician pay. According to the Arizona Department of Revenue, "Compensation received for full-time civil service employment would not qualify for the subtraction under A.R. S. 43-1022.19. Therefore, a member of the National Guard who is also a civilian employee of the National Guard is not eligible to subtract the amount of civilian pay received during the taxable year as a civilian employee of the National Guard." Technicians receive one Form W-2 for their military income and one Form W-2 for their technician income, so it is clearly identifiable what income is a subtraction from income and what is not. The intent of the legislation is to provide a subtraction from Arizona income for military income only. Incorrectly taking a subtraction from Arizona income will result in taxes, interest, and penalties being assessed should the tax return be audited. This could amount to thousands of dollars depending on the size of the income being subtracted and the number of years the technician elects to subtract their income incorrectly. I suggest amending tax returns if you've made this mistake to prevent penalties and interest from accumulating. Editor's Note: Senior Master Sgt. Bonlender is an Enrolled Agent, licensed by the Department of the Treasury to represent Taxpayers before the Internal Revenue Service. Because of his military service and prior civil service experience, he has specialized in military taxpayers.