Most of us prefer to get our taxes filed as quickly, simply, and painlessly as possibly, hopefully with the minimum paid and a maximum refunded. However, as we’ve emphasized in our blogs on service member taxes, it’s very important for members of the military to understand the special benefits, deductions, and options they have available that can help them to reduce their tax liability. One such benefit that can be confusing relates to state of residency for service members and spouses. State of residency is important because it can affect whether service members and their spouses pay state income tax.
State of Legal Residence: Service Members
Where an active duty service member files taxes is not based on where he or she is currently living, but rather on his or her state of legal residency, also often referred to as his or her home of record. This is the state the service member legally claims as his or her home state. Often, it is the state in which the member enlisted. This is the state in which the service member should file taxes.
If there is any confusion about a service member’s state of legal residence, it can be located on his or her Leave and Earnings Statement.
State of legal residency can be changed, but not without filing the proper paperwork. Note that it may sometimes may be in the family’s best interest to change state of legal residency (for instance, if a PCS takes you to a state with no income tax).
State of Legal Residency: Spouses of Service Members
In 2009, Congress passed the Military Spouse Residency Relief Act (MSRRA) Under the terms of the law, military spouses (who are not in the military themselves) may also be able to claim legal residency in the same state as their spouse. This simplifies state income taxes and may help reduce tax liability.
Qualifying to Claim Legal Residency in Another state as a Military Spouse
In order for military spouses to claim legal residency in a state other than the one in which they live, they must:
- Be living in the non-home state due to a PCS;
- Be living in the non-home state solely to be with their spouse;
- Have previously lived in the state they desire to claim as a home state and be able to prove residency there
Note: If the spouse plans to file taxes in a state other than the one in which they live, but the spouse earns income in the state where they currently reside, they may need to declare nonresidency for tax withholding purposes, so that their employer handles taxes correctly. If a nonresident spouse’s employer has withheld state taxes anyway, he or she may need to file a nonresident return with that state in order to receive a refund.
Filing State Income Taxes
So, when servicemembers and spouses who live in a state other than the one where they hold legal residency file tax returns, how does state income tax work? It varies by state, but typically these laws help reduce tax liability for service members and spouses. To learn more about how each state handles the situation, visit this link from TurboTax.
Bjej, H., & Business Consultants. (2016). Tax Considerations for Active Duty Military. Retrieved from https://www.thetaxadviser.com/issues/2016/dec/tax-considerations-for-active-duty-military.html
H& R Block. (n.d.) Military taxes and residency. Retrieved from https://www.hrblock.com/tax-center/lifestyle/military/military-taxes-and-residency/
H& R Block. (n.d.) The Military Spouse Residency Relief Act (MSRRA) – Making Tax Time Easier for Military Familieshttps://www.hrblock.com/tax-center/lifestyle/military/military-spouse-residency-relief-act/
TurboTax. (n.d.) Military Filing Information on State Websites. Retrieved from https://ttlc.intuit.com/questions/1899163-military-filing-information-on-state-websites
TurboTax. (n.d.) Military spouses and state taxes. Retrieved from https://ttlc.intuit.com/questions/1901516-military-spouses-and-state-taxes