The Military Spouses Residency Relief Act has created an advantage for spouses of our military. Over simplified, the law states that the spouse of an active military member is treated as having the same State of Residency as the service member. The spouse must be in the state solely to be with the service member serving in compliance with military orders. For example, if the spouse of the active military member lives and works in Georgia (where the service member is stationed), but has a State of Residency in Texas (a no income tax state), then there will be no Georgia taxes and no Texas taxes. See the chart below for what types of income are taxed to which state:
For military members there is a distinction between State of Record and State of Residence. State of Record is the state in which the military member joined the Armed Forces and which the Armed Forces is liable to return the service member to when the service member separates. State of Residence is the state in which the service member is claiming as their current residence. Many service members choose a state in which there is no state income tax, such as Texas to save themselves that additional state tax. This law will also save the service member’s family the spouses state income tax also. State of Residence can be changed with the service member’s personnel office.
|Chart on Taxes of Military Member and Spouses|
|Income Type||Military Member||Spouse|
|W-2 wages from Military||Taxable to home state||NA|
|W-2 wages – other||Taxable to state in which income earned||Taxable to home state|
|Self Employment income||Taxable to state in which income earned||Taxable to home state|
|LLC – income from service||Taxable to state in which income earned||Taxable to home state|
|LLC – income from property||Taxable to state where property is located||Taxable to state where property is located|
|S-Corporation K-1||Taxable to state where business is located||Taxable to state where business is located|
|Rental Property||Taxable to state where property is located||Taxable to state where property is located|
Additional Military Tax Tips
- Combat Pay – Enlisted and Warrant officers may exclude from taxable income the full month’s pay if they were in a combat zone for any portion of the month. Officer’s exclusion is limited to the highest enlisted pay plus hostile fire pay or imminent danger pay.
- Extension of Deadlines – Qualifying military members receive an automatic extension of time to file tax returns, pay taxes, filing claims for refund and taking care of other IRS matters. Generally to qualify, the member must be out of the country
- Moving Expenses– Unreimbursed moving expenses can be deducted if the move was due to a change of permanent duty station.
- Travel to Reserve Duty – Any travel expenses are deductible if the reserve duty station is over 100 miles from the service member’s home.
- ROTC Students – Subsistence Allowances paid to ROTC students participating in advanced training are not taxable, however active duty pay such as Summer advanced camp is taxable.
- Transition Back to Civilian Life – Job hunting expenses are deductible. Expenses include travel, resume preparation fees, and outplacement agency fees. Moving expenses related to the start of work at a new job location is also deductible.