Have you just finished filing your taxes in a different state to your spouse? Perhaps you just had a PCS and are in the process of updating your drivers license and registering to vote in your brand new “home state.”

Moving regularly can be a complex administrative process. Service Members have always been allowed to retain one state of residence (legally known as a “state of domicile”) through a series of military related moves, but until recently, Military Spouses were not covered by any such legislation. In 2009 this changed with the creation of the Military Spouse Residency Relief Act (MSRRA).

 

What is the MSRRA?

 

The MSRRA allows Military Spouses, under specified conditions, to maintain one “state of domicile” for the purposes of residency, voting and taxation. The law does not permit the Military Spouse to pick and choose any state. It must be the same state as that claimed by the Service Member, and the Military Spouse must qualify for residency in that particular state.

 

Am I covered?

 

If you and your Service Member currently claim different “states of domicile,” it means that you may not be able to claim the MSRRA unless the Service Member switches their “state of domicile” to the one you are currently located in. My husband has always claimed Florida, but when we married he was stationed in Texas. I moved to, and therefore became a resident of Texas. I was ineligible to claim Florida residency under the MSRRA as I had never lived and could not meet their state requirements for residency. Moving on military orders to Ohio, my husband continued to claim Florida, but I was forced to change to Ohio. We then moved to Florida. Once living in Florida, I met the state requirements to become a resident. When we moved to Hawaii, I was covered under the MSRRA as I had the same “state of domicile” as my husband. I can continue to claim Florida for the remainder of our military PCS moves.

 

What are the taxation implications for a Military Spouse working in a state different to their state of residence?

 

A Military Spouse is exempt from paying state income taxes in the state they are working if they are covered under the MSRRA. The Military Spouse must:

• reside in a state different than the state of claimed residency, and
• reside in the state solely to live with the Service Member.

The Service Member must be present in the state in compliance with military orders, and the Military Spouse and Service Member must both legally claim the same state of residency. If you and your Service Member spouse are fortunate enough to claim one of the nine US states with limited or no income tax, it means you may only need to file your Federal Taxes with the IRS. If your “state of domicile” has a high state income tax rate, you might consider waiving your protections under the MSRRA and choosing to change your “state of domicile” to the one in which you are physically located and working.

 

But what if my employer withholds state taxes even though I am covered under the MSRRA?

 

Many employers may not be aware of the MSRRA and will automatically withhold or deduct state taxes. The easiest way to avoid this is to understand wether you qualify for the MSRRA, and if so, to ensure that your employer is made aware of your claimed “state of domicile” under the MSRRA when you fill out your initial employment paperwork and W-2. If your employer does not withhold state taxes, most states do not require you to file a tax return in that state. However, if your employer has withheld state taxes and you are covered under the MSRRA, you will need to file to have that money returned. If your “state of domicile” does have a state income tax, you will need to file in that state.

Where can I learn more?

 

The MSRRA is a complex piece of legislation and individual states have different requirements to prove eligibility to claim residence. The Federation of Tax Administrators provide a thorough summary of the MSRRA and Turbotax contains some good state by state information for military families. An internet search for “MSRRA and <state>” will usually yield the more specific guidance for your location. Links to these state based documents are also contained within the Local Chapter Forums on the In Gear Career website. It is definitely worthwhile to ensure you fully understand your rights and options under the MSRRA as it may reduce the administrative hassle of the next move and leave more money in your pocket.