On November 11, 2009, the Military Spouses Residency Relief Act was signed into law. The United States government felt this legislation was needed to reduce the burden military families faced when filing income tax returns. Here we take a look at this legislation and how it affects military families.
The Military Spouses Residency Relief Act
What is it the Military Spouses Residency Relief Act?
The Military Spouses Residency Relief Act (Public Law 111-97, S. 475) is designed to provide relief from certain tax restrictions placed on the spouses of military servicemembers. Prior to this Act being signed into law, a military servicemember was permitted to use their home state as their legal state of residence regardless of where they were stationed. Unfortunately the same rules did not apply to the (non-military) spouses of these men and women. As a result, the non-military spouses were required to file his or her state taxes in the state in which they were stationed versus their “home” state. Beyond taxation issues, when a person is required to change their state of residency, there are other issues that arise such as voting, car registration and even savings plans such as 529’s used to save for college tuition.
How does the Military Spouses Residency Relief Act work?
This law makes it possible for the non-military spouse to retain their home state of residency only if the reason for leaving was a result of a permanent change of station (PCS) for their military spouse. Under this legislation, non-military spouses are able to file their state taxes in the same state as their spouse. Because the military spouse retains their original state of residency or home state status, the new state in which they reside will not be able to tax earned income.
What does it mean for military spouses?
As a result of this legislation, the way married couples file their tax returns will change if the non-military spouse opts to retain their home state of residency. If the non-military spouse earns income in the state in which they are stationed, that state may still withhold state income taxes. This means the individual will be required to file a state tax return to recover their withheld taxes and in turn file a joint resident return with their military spouse in their home state.
There have been no changes to how non-military income is taxed in a state other than your home state. For example, if a servicemember stationed in another state has a part time job that is not related to the military, that state is permitted to tax this non-military income. When this situation occurs, the military spouse will file a nonresident return and pay tax in the state in which they are living and earning the non-military income. When filing their tax return in their home state, they will see an out-of-state credit for taxes paid in the state in which they reside.
There can be pros and cons for this tax status, depending on your situation. Military families who have questions regarding how the Military Spouses Residency Relief Act affects their taxes can seek advice from a tax professional in their state of residency as well as the state in which they currently reside. It is important that all servicemembers and their spouses to understand how this Act affects their tax filing status.