Are you a milspouse who is frustrated with employers that do not understand the Military Spouse Residency Relief Act? Are you confused on what exactly that means? I have some resources to help you!
Every tax situation is special and you will hear more times than you can count the answer “it depends,” when asking about the tax consequences of a variety of actions.
The basic bones of the Military Spouse Residency Relief Act (MSRRA) are these three prongs:
- Your service member spouse is only in the state due to military orders.
- You are only in the state to be with your service member spouse.
- You and your service member are domiciliary residences of the same state.
So, what does that mean?
If you meet all three of these criteria, then your earnings from services are not taxed in the state you happen to be living in due to military orders. Instead, that income is sourced to your home state, which means rather than being taxed in, for example, New York (if that isn’t your home state), your income would be taxed in whichever state was your home state, for example, Kentucky.
Some states are more generous than others, and do not require the third prong that the service member and milspouse must have the same state of residence, but the letter of the law is to receive a tax benefit, you should. Many states follow closely the guidance in the act.
If you are self-employed there may be other considerations, such as the type of entity you have established and where it is registered, how you receive your income and whether or not you have employees.
This also does not mean that just because you have married your spouse that you automatically have the same tax home. You must have established state residency in the state you claim as your domicile by following the laws of that state to do so. And, no, you cannot go on vacation to Florida and then claim that as your state of residence.
Finding State Specific Information
Since each state has their own way of complying with the MSRRA, each state has its own guidance. Every year the Navy JAG Corps creates a State Tax Guide that military VITA sites use to assist with tax preparation. The best part is they post their guide online and it has a quick snapshot for each state and a link to each state’s Department of Taxation/Revenue web pages.
I have brought this very special document right to you, so no need to search for it. Find the Navy State Guide 2018 right here.
Visit your duty station state’s tax web page and search for their withholding forms. Usually, right on the form, they have a section for the milspouse exemption. If you are part of a large employer, they may have accounts set up already in your home state and can withhold those state taxes for you. If not, you may need to make estimated state tax payments to your home state. Just because you are exempt from income tax at your duty station doesn’t mean you escape taxation altogether.