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:
A few rules apply:
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:
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.