Can an ROTC instructor paid by a school district subtract that pay as military pay on Illinois Schedule M?

Plain-English summary

A retired Army officer working as a high school ROTC instructor in Peoria wrote to the Illinois Department of Revenue asking whether the wages on his W-2 -- issued by the school district, though the ROTC program itself is funded by the Army -- qualify as "military pay" that he can subtract from his income on Illinois Schedule M.

The Department did not give a clear yes or no. It explained that Illinois' subtraction modification for military pay, found in Section 203(a)(2)(E) of the Illinois Income Tax Act (35 ILCS 5/203), covers compensation paid to a resident for being on active duty in the U.S. Armed Forces, for being a prisoner of war or missing in action, or for National Guard service. But the Department also noted that, generally speaking, military pay received as a civilian is not entitled to tax-exempt status. Because the instructor's paycheck came from the school district rather than directly from the military, the Department said it could not tell from his letter whether his ROTC instructor position counts as a "military title" under 32 U.S.C. § 709(a), as designated by the Secretary of the Army or Secretary of the Air Force.

Since this is a General Information Letter (GIL), it is explicitly not a statement of Department policy and is not binding. The Department pointed the taxpayer toward its prior guidance for civilian employees (Letter Rulings IT 16-0003-GIL and IT 16-0008-GIL) and toward Publication 102, and told him that if he wants a definitive, binding answer he would need to submit a request for a Private Letter Ruling with the information required under 86 Ill. Adm. Code 1200.110(b).

What this means for you

ROTC instructors and other school-employed military-affiliated staff

If your paycheck comes from a school district or other civilian employer -- even if the underlying program (like ROTC) is federally funded -- Illinois will not automatically treat your wages as exempt "military pay" on Schedule M. The key question the Department flagged is whether your specific position carries a recognized military title under 32 U.S.C. § 709(a), assigned by the Secretary of the Army or Secretary of the Air Force. A generic instructor role paid by a school district, standing alone, was not enough for the Department to confirm eligibility in this letter.

Veterans and retired service members with civilian pay

The Department was direct on one point: generally speaking, military pay received as a civilian is not entitled to tax-exempt status. If you've retired from active duty and now work in a civilian capacity -- even one connected to the military, like an ROTC program -- don't assume your new pay automatically qualifies for the Schedule M subtraction just because of your military background or the program's funding source.

Accountants and tax professionals

This GIL is a useful pointer to the governing statute (35 ILCS 5/203(a)(2)(E)) and to the Department's two prior GILs on civilian employees (IT 16-0003-GIL and IT 16-0008-GIL), but it resolves nothing on its own. If a client's facts turn on whether a position is a recognized "military title" under federal law, this letter shows that a GIL request will not settle the question -- you'll need to gather the documentation showing the federal designation, or pursue a binding Private Letter Ruling under 86 Ill. Adm. Code 1200.110(b) for a conclusive answer.

Common questions

Q: Does this ruling say ROTC instructor pay is exempt from Illinois income tax?
A: No. The Department did not resolve the question. It described the subtraction modification available for active-duty and National Guard pay, but said it could not determine from the taxpayer's letter whether his position met the federal "military title" standard needed to qualify.

Q: Why couldn't the Department just answer the question?
A: Because the letter didn't establish whether the ROTC instructor position was formally designated a military title under 32 U.S.C. § 709(a) by the Secretary of the Army or Secretary of the Air Force. Without that, the Department couldn't say whether the pay counted as military compensation rather than ordinary civilian wages, even though it's tied to a military-funded program.

Q: Is pay from a civilian employer ever eligible for the military pay subtraction?
A: Based on this letter, it's not automatic and is treated as the exception rather than the rule -- the Department stated that "generally speaking, military pay received as a civilian is not entitled to tax-exempt status."

Q: Can I rely on this letter for my own tax return?
A: No. This is a General Information Letter, which by definition is not a statement of Department policy and is not binding on the Department. It also did not reach a firm conclusion for the taxpayer who requested it. For a binding answer, a taxpayer must request a Private Letter Ruling and provide the information listed in 86 Ill. Adm. Code 1200.110(b).

Citations and references

• 35 ILCS 5/203(a)(2)(E) (Illinois Income Tax Act subtraction modification for military pay)
• 86 Ill. Adm. Code 1200.120(b) and (c) (General Information Letters are non-binding)
• 86 Ill. Adm. Code 1200.110(b) (requirements to request a binding Private Letter Ruling)
• 32 U.S.C. § 709(a) (federal statute governing military technician titles)

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2017.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2017/it-17-0012-gil.pdf

Original ruling text

IT 17-0012-GIL 12/28/2017 SUBTRACTION MODIFICATION
Subtraction modification for military pay by ROTC instructor (This is a GIL.)

12/28/2017

Re: Subtraction modification for military pay by ROTC instructor
Dear Xxxxx:
This is in response to your letter in which you request information regarding your ability to deduct your
wages as military pay on Schedule M. The nature of your request and the information you have
provided require that we respond with a General Information Letter, which is designed to provide
general information, is not a statement of Department policy and is not binding on the Department.
See 86 Ill. Adm. Code 1200.120(b) and (c), which may be found on the Department's web site at
www.tax.illinois.gov.
Your letter states as follows:
I am a retired Army officer and now an instructor of ROTC at a high school in Peoria. I receive
a W-2 from Peoria District 150 with both federal and state taxes withheld for the position of
being an ROTC instructor. The ROTC program at the High School is funded by the Army,
however my pay and my W-2 comes from the School District.
Since I am an instructor of ROTC, does pay that I receive on my W-2 from the School District
as an ROTC instructor qualify as military pay and can I deduct that pay on the Schedule M?.
RULING
Section 203(a)(2)(E) of the Illinois Income Tax Act (“IITA” 35 ILCS 5/203) provides the following
subtraction modification in the computation of base income:
For taxable years ending before December 31, 2001, any amount included in such total in
respect of any compensation (including but not limited to any compensation paid or accrued to
a serviceman while a prisoner of war or missing in action) paid to a resident by reason of being
on active duty in the Armed Forces of the United States and in respect of any compensation
paid or accrued to a resident who as a governmental employee was a prisoner of war or
missing in action, and in respect of any compensation paid to a resident in 1971 or thereafter
for annual training performed pursuant to Sections 502 and 503, Title 32, United States Code
as a member of the Illinois National Guard or, beginning with taxable years ending on or after
December 31,2007, the National Guard of any other state. For taxable years ending on or after
December 31,2001, any amount included in such total in respect of any compensation
(including but not limited to any compensation paid or accrued to a serviceman while a
prisoner of war or missing in action) paid to a resident by reason of being a member of any
component of the Armed Forces of the United States and in respect of any compensation paid
or accrued to a resident who as a governmental employee was a prisoner of war or missing in
action, and in respect of any compensation paid to a resident in 2001 or thereafter by reason
of being a member of the Illinois National Guard or, beginning with taxable years ending on or
after December 31, 2007, the National Guard of any other state. The provisions of this
subparagraph (E) are exempt from the provisions of Section 250.
We previously have issued guidance on how to interpret this provision for civilian employees. See
Letter Rulings IT 16-0003-GIL and IT 16-0008-GIL, available on our website, www.tax.illinois.gov.

IIT 17-0012-GIL
Page 2
Generally speaking, military pay received as a civilian is not entitled to tax-exempt status. See
Publication 102. We cannot determine from your letter whether your position constitutes a military title
under 32 U.S.C. §709(a) by either the Secretary of the Army or Secretary of the Air Force.
As stated above, this is a general information letter which does not constitute a statement of policy
that applies, interprets or prescribes the tax laws, and it is not binding on the Department. If you are
not under audit and you wish to obtain a binding Private Letter Ruling regarding your factual situation,
please submit all of the information set out in items 1 through 8 of Section 1200.110(b). If you have
any further questions regarding this letter, you may contact me at (312) 814-1722.
Sincerely,

Brian E. Fliflet
Deputy General Counsel, Income Tax