With the Military Spouses Residency Relief Act (MSRRA), which took effect in 2009, spouses are able to keep the same permanent residency status as their service member. The tax implication of this is that spouses can have their income taxed by their state of permanent residence. (Prior to this act, a military spouse’s income was taxed by the state in which a spouse worked.)
The MSRRA is especially advantageous if a service member chooses as a residence one of the seven states which do not charge income tax: Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming. In addition, New Hampshire and Tennessee charge tax only on income earned through interest and dividends.
To be eligible, spouses must:
- currently reside in a state different than the state of his/her domicile,
- reside in the state solely to live with the service member; and
- live with a service member who is present in the state in compliance with military orders.
A few rules apply:
- The spouse does not “inherit” the domicile of the service member upon marriage.
- The spouse must be able to show that he or she had the domicile before moving into a different state through the new state’s existing list of facts and circumstances, or “proofs of intention,” that demonstrate a domicile.
- The spouse must have maintained that earlier domicile.
- At a minimum, the spouse must have lived in a state before claiming it as a domicile. State laws vary on what circumstances validate having established a domicile in another state and what proof is sufficient.
State regulations differ on whether the service member and spouse must have identical domiciles before the act applies. Some scenarios cause the spouse to become ineligible:
- The service member leaves the service.
- Voluntary physical separation due to duty changes of the service member (deployment to a war zone or other location where the spouse is not allowed to follow does not count against them).
- The spouse commits an action that clearly establishes the state of residence as his or her state of domicile, such as filing a court action, accepting in-state tuition, voting, using a property tax homestead exemption, and applying for certain state benefits such as certain tax credits.
There are some exceptions, such as real estate income, so service members should check with their legal assistance office for more information. To find the nearest legal assistance office, refer to legalassistance.law.af.mil/content/locator.php.
Personal Financial Management Program (PFMP) staff can check the regulations for a particular state at paycheck-chronicles.military.com/2010/02/04/msrra-links-state-by-state/ or search “Military Spouses Residency Relief Act” and the name of a state.