Income Tax Info on the MSRRA

Well, my previous post on the Military Spouse Residency Relief Act has generated a lot of comments.  I love it!  Obviously, there are many questions about what this Act is going to mean once it is fully interpreted and the individual states change their laws and practices.

Today, I'm going to talk about the income tax aspect of the Act.  This is the part that has interested me the most.  We've usually kept our cars in my husband's name (to make Virginia happy) and I've always kept my Florida driver's license and voter registration.  This was only a problem one time, when I wanted to take some college classes in Virginia, but it was a long time ago and those issues have been resolved by previous legislation.  However, paying taxes in multiple states is annoying and time consuming!  Any change that makes tax time easier is a good change in my book.

While this act was being written and passed, there was a lot of discussion about whether it meant that military spouses would be able to pay income taxes to their permanent residence state instead of the state in which they lived or worked.  Now that the dust has settled, it appears that is the case.  Based upon my reading of individual state replies and President Signs Military Spouses Residency Relief Act, published in the Journal of Accountancy, it seems that military spouses will be able to pay state income tax to the state that they claim as their residence.  If that state does not tax income, then the spouse will not be required to pay state income tax.  Whooohoooooo!!!!  What a blessing for military families.

So far, most information of the information available has come from individual emails that have been published at the Military Spouse Residency Relief Act's Facebook page.  I'm not going to cut and paste them all here – you can click on the link to see what people have heard from your individual state.  However, I will compile a list of links once the individual states begin to publish their new directions online.I know that we're all excited to learn more, but it will take time for it to be organized and implemented.  Hang tight and I'm sure it will all come clear in the coming weeks.

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.
  • Thanks for the article(s)! I just want to point out that the actual language of the Act looks like it does allow a spouse to pay state income tax only in their state of “residence,” and not in the state where his/her servicemember is stationed. HOWEVER, the plain language of the Act makes it clear that you CANNOT CLAIM A DIFFERENT STATE OF RESIDENCE FROM YOUR SPOUSE. The two of you must have the same residence in order for you to get protection from the Act.
    So… For example, where you, as a spouse, kept your FL “residence”, but it sounds like your husband kept his VA residence, one of you would have to switch.
    The language of the Act says this:
    “A spouse of a servicemember shall neither lose nor acquire a residence . . . for purposes of taxation . . . by reason of being absent or present in any tax jurisdiction of the United States solely to be with the servicemember in compliance with the servicemember’s military orders IF THE RESIDENCE . . . IS THE SAME FOR THE SERVICEMEMBER AND THE SPOUSE.”
    This law does NOT allow you to maintain two different states of residence. And if you think about it, it makes sense, since the definition of being a “resident” in most states involves something like “an intent to return and reside there permanently”…so if you and your husband have two different residences, you’re saying that at some point you intend to reside in different places permanently, which is a little odd under the law.
    Just wanted to give people a heads-up, because I know many people are in a similar situation where they have a different original state of residence from their servicemembers (myself included…I’m NM / he’s CA).

  • Kate

    Celeste, you are absolutely right. In order to benefit from this law, the spouse and the service member must claim the same state of residence. In our case, my husband and I have always used Florida for our voting, drivers’ licenses, and auto registration. The comment about Virginia refers to the fact that when we are stationed in Virginia, Virginia would require us to pay personal property tax on our vehicles if my name was on the title. Since we’re Navy, and regularly move back to Virginia, it has always been easier for us to keep the cars in my husband’s name.
    Everyone, be sure to understand Celeste’s excellent point: in order to use this law to maintain a single legal residence, both the service member and the spouse must claim the same residence.

  • Bill

    Somehow, I don’t think y’all should count your chickens before they hatch. I strongly suspect that some states will get together to block part of this in the courts before it is fully implemented (but I don’t know if any are considering it yet)
    Spouses of Military members have been treated unfairly for years as to having to change drivers lisc, car registration, voting home, etc for years. With this law, it is now equally unfair that spouses of military working out of their home state should not be subject to non-resident income taxes on their income, while civilians working close to state lines, and working across state borders must still pay the non-resident taxes.
    Now I’m going to duck

  • Bill,
    You raise a good point that it’s certainly possible that many states will challenge this in the courts. We’ll just have to cross our fingers on that one! (And fight them as they come up!)
    As to your other point, if I’m understanding it correctly, the idea is that it’s unfair to give military spouses “special treatment” with respect to paying taxes in the state where they work but don’t “reside.” Your argument is that civilians who live in one state and work in another often have to pay taxes in both states, so why shouldn’t military spouses have to do so as well?
    To answer that, I think it’s important to look at the overall purpose of the Servicemembers Civil Relief Act, which the MSRRA is amending. The idea behind the taxation provisions of the Act is to acknowledge that servicemembers are in a unique position because they are often located in a place not by “choice,” but on military orders. Consequently, allowing taxation by multiple states would unfairly penalize them for something that is not only beyond their control, but *in direct service to their country*. The MSRRA simply extends that thinking to the spouses who, while not directly employed by the military, are effectively subject to the same orders as their servicemembers.
    In a nutshell, civilians who live in one state and work in another are doing so by choice. Military families are not in the same position, and to analogize the two is to misconstrue the nature of military service.
    Of course, it could always be argued that a servicemember “chose” to join the military, just as a civilian chooses to live and work in different states. But I think that would be stretching the argument a bit too far. And in any case, it seems to me the government ought to have the ability to “level the playing field” for servicemembers in order to, if not encourage, at least prevent people from being dissuaded from joining the military.
    No ducking necessary! Intellectual debate is healthy! :)

  • Bill

    Yeah…I considered the choice vs military orders argument, and I actually think that in the end, whatever “most” states lose in taxes from the now exempt spouses within their borders, the state will gain from their non-resident “resident” spouses that were formerly paying taxes to other states. A zero-sum so to speak. But unintended consequensces will rear their ugly heads, and I guess we’ll have to wait for the rules of implementation to be made in the next couple months.
    Does my Mom and Pop candle shop in Monterrey now have to figure out a way to withold state taxes for all the other states, or just not hire spouses of military. Which state do they pay unemployment insurance to…etc, etc. Huge residency fraud headaches for the states because suddenly I think I need to claim I’m married to a TX military person to avoid NC state taxes (but I’m sure there will be new paperwork proofs required). The Base legal folks are going to have to schedule meetings/classes for couples once they figure out the procedures to legally reset what are now mixed residency couples.

  • Tracey

    I would like to contribute we are victims of VAs residency tax on vehicles. Upon arrival to the State there is no briefing on inprocessing forewarning residents on/off post of such a tax. It is but a year or more later you receive a hefty bill in the mail (ours was $1685.00), one month after Christmas. Once I’d picked myself off the kitchen floor & frantically searched for a POC # I soon discovered that we owed VA for this tax as I had one car & my motorcycle under my name DESPITE US BOTH HAVING SAME STATE RESIDENCY & DRIVERS LICENSES. I searched every loophole I could to avoid payment but being on post no longer excluded you from this tax, though 6 yrs previous it did. We had to pay in full despite my relentless argument. I also had to give up the rights to ownership of MY vehicles which is ironic seeing as I bought not only mine & own them, I bought his too as a gift. Hope this warning gets to the girls before they PCS to VA. Don’t rely on anyone but yourself to get the facts & get your vehicles switched over to his name. Registration & plates must be in the service members name only. Good Luck!

  • M.A.

    Does this legislation effect the military dependents’ in-state tuition for University if the spouse declares residency in that state? In other words, the military member is due to PCS this summer. If the spouse declares residency in the state in which they currently reside, will their children be able to declare in-state residency and tuition?
    THAT would be much more help in our situation than the tax in question.

  • Kate

    M.A., this link should help you with the residency question:…. As I understand it, as long as the service member resides in the state when the child begins college, the child may maintain their in-state residency throughout their time at that college. I don’t know if that helps with your particular timeline. Good luck!

  • John

    Great questions on this thread. So a spouse works in CA, is a resident of OH and does not pay CA taxes per MSRRA.
    –Can she collect on CA unemployment/disability or OH?
    –How does a small business owner in CA coordinate with OH to deduct OH state taxes for a military spouse?
    –Can a spouse still be a resident of state and not pay taxes to either state using MSRRA?
    Bottom line each state will treat this differently and come tax time 2010 will be a lot confusion out there for us tax preparer’s.

  • Has this been signed yet by the President, and thus effective for 2009 tax year?

  • Kate

    Yes, Dennis, it has been signed into law and specifically states that it will be effective for the 2009 tax year.

  • Sarah

    I have a question about the statement that “both spouses have to claim the same state” – my husband is a resident of Alaska (a state in which I was never in) but we met and married in Georgia (where I am still considered a resident of as far as driver’s license, home of record, etc). We now live in Kansas where I am employed. So how does this law affect me? Am I even able to change my state to Alaska having never lived there? Or does he have to change to Georgia?

  • Harry Heavey

    In regard to fairness of this bill to military and non-military people working in a stste different tha their official residence. I lived in POennsylvania for many years and Pennsylvania had an agreenment with all it’s contiguous states that if an individual worked in one state and resided in another, the wages were only taxable to the residential state. Most non-military personnel who work in another state work in a contiguous state while military personnel must often work in a noncontiguous state. This bill helped level the playing field.

  • Mary

    I was wondering if your state of record is one state but you are collecting unemployment do to a recent PCS do you have to have the state taxes taken out of the state you are filing unemployment from even though it is not home of record under the MSRRA?