Military Spouses Residency Relief Act

[Brydown1]

My wife has just informed me that the President signed S. 475, the "Military Spouses Residency Relief Act", yesterday.

You can follow this link, http://www.whitehouse.gov/the-press-office/statement-president-s475 , to get a better idea what this act does for us and our spouses.

One advantage of this besides voting purposes is, if you live in Virginia and are tired of paying taxes on your vehicle because you have it registered in both your name and your spouses (non-military) name. You previously had to fork over what ever amount of taxes Virginia stated you owed because they viewed that your spouse was now a resident of the Commonwealth of Virginia. This was not covered in the Soldier and Sailor relief act. With this act now, they can no longer do such a thing because she/he can no longer legally be considered a resident of any other state, unless they wish to be, then her/his home state when their spouse has military orders to that state.

 

[helo_wifey]

This has been in the works for the past 3 years and I was glad to see it finally come to fruition yesterday. Here's proof that 2 determined people can make a large change.

 

[Brydown1]

My wife and I both called our congressmen requesting endorsement on this when it was trying to passed up over the summer. We are also extremely happy it got passed.

 

[NUFO06]

That will be amazing for income taxes. +1 for all those who worked so hard to get it passed.

 

[Fred]

I find this bill incredibly confusing. If a couple are residents of IL and are stationed VA does the civilian spouse not have to pay VA state income tax on their earnings, do they pay it to IL?

 

[ChunksJR]

I find this bill incredibly confusing. If a couple are residents of IL and are stationed VA does the civilian spouse not have to pay VA state income tax on their earnings, do they pay it to IL?

Yeah, I thought of that for a second, with a glimmer of hope in my head. Then I realized how much of an idiot I was for that thought (no offense meant.. ).

State taxes are paid in the state they are earned. If your wife, however, has a federal income (like us) then it would behoove her to be in a state with no income tax and keep that state (like 95% of us) as home to avoid the state income tax. I think.

 

[villanelle]

Mayhaps I am an idiot then (hush, peanut gallery!), because I was under the impression that it would mean that you pay the state income tax (or lack thereof) for the state of which you are a resident, not the state where you live.

Isn't that how it works now for the serivemember? If you have Nevada residency but are stationed in CA, you don't pay CA income tax, you pay Nevada income tax (which is non-existant). No?

 

[ChunksJR]

Mayhaps I am an idiot then (hush, peanut gallery!), because I was under the impression that it would mean that you pay the state income tax (or lack thereof) for the state of which you are a resident, not the state where you live.

Federally income --- true. Since there is no "federal" state. However, if you are working for a privately/publicly owned company in CA, you'll be responsible for the income there. CA especially, I know that my wife filed a "non-resident" income tax when we were engaged (she lived with me, was a waitress, paid CA taxes on that income (paychecks from a CA restaurant) but was a "resident" of FL, where her parents lived.

Isn't that how it works now for the serivemember? If you have Nevada residency but are stationed in CA, you don't pay CA income tax, you pay Nevada income tax (which is non-existant). No?

That's correct, again, I think it's because of the federal income. Your spouse, however, would be taxed in CA because she/he used to have to claim residency within a certain time of you getting stationed there. The company paying your pay did so based on your state that you worked...the tax filing at the end of the year had to be a "in-state resident" tax filing. Now, you may do a "non-resident" tax filing and possibly get some of that money back, like my wife (then fiancee) did since this law was signed into effect, but the company will still take CA taxes out of the spouse's paycheck.

I'm tired.

 

[Fred]

Isn't that how it works now for the serivemember? If you have Nevada residency but are stationed in CA, you don't pay CA income tax, you pay Nevada income tax (which is non-existant). No?

We are TX residents and have no state tax, but when we lived in CA my husband had a side job and had to pay CA income tax on it.

 

[NBW]

Tax Issues

Check with the legal assistance office on base for tax issues. I know that the Navy has a lawyer that runs the Tax Clinic in the legal assistance offices every year from January to April to provide free income tax filing for military members and their spouses. The NLSO JAGs do training on these issues, so I have no doubt that this new status for spouses will be part of it.

 

[villanelle]

Interesting. I guess my plan to establish residency in Nevada while we are in Japan (for when we return) won't help much then, unless I get a federal job down the road.

 

[sundevil_av8r]

My understanding of the MSRRA is that my wife can claim the same state of residency as myself and will not owe taxes to any of the states which I am stationed. However, she will owe taxes to the state which I claim legal residency. Based on what I have been told I have a few questions:

1. My wife lives with me in Texas but works from home for a company in Illinois. My state of legal residence is Arizona. Is it correct that under this act she will be reimbursed for her Illinois withholdings and owe state income taxes to Arizona?

2. Since we have lived in Texas for two years, can I change my state of legal residency to Texas at this time and apply the MSRRA for my 2009 taxes? This is something I want to do in the future so my wife and I don't have to pay state income tax. I am just wondering if it is legal to change it now and apply it for 2009 since we both lived here all year but have IL and AZ on our W-2's.

 

[insanebikerboy]

2. Since we have lived in Texas for two years, can I change my state of legal residency to Texas at this time and apply the MSRRA for my 2009 taxes? This is something I want to do in the future so my wife and I don't have to pay state income tax.

I can't speak for the rest of your post, but if that's the sole reason you're changing your state of residency just be careful. Some states will go after you for back taxes if you move back at a later point in life.

 

[sundevil_av8r]

I don't think either of us want to move back to Arizona, but I don't want to completely rule it out. I was under the impression that your state of legal residence is where you plan to live when you retire, and that it can change as your plans change. Right now I may like Texas but what if I change my mind later?

 

[OnTopTime]

My understanding of the MSRRA is that my wife can claim the same state of residency as myself and will not owe taxes to any of the states which I am stationed. However, she will owe taxes to the state which I claim legal residency. Based on what I have been told I have a few questions:

1. My wife lives with me in Texas but works from home for a company in Illinois. My state of legal residence is Arizona. Is it correct that under this act she will be reimbursed for her Illinois withholdings and owe state income taxes to Arizona?

2. Since we have lived in Texas for two years, can I change my state of legal residency to Texas at this time and apply the MSRRA for my 2009 taxes? This is something I want to do in the future so my wife and I don't have to pay state income tax. I am just wondering if it is legal to change it now and apply it for 2009 since we both lived here all year but have IL and AZ on our W-2's.

Your wife may be able to claim the same state of residency as yourself for tax purposes, depending on her situation. Neither she nor you can just pick any state and claim that state as your new state of legal residence. Generally, there must be practical and legal ties to the state that is claimed, such as actually living there, registering to vote, obtaining a driver's license/registering vehicles or owning real property. Also, it should be your current intent to relocate to this state when you end your current active military service. Notice that I said current intent, since as we all know plans can always change. Since Texas has no state income tax and that's where both you and your wife currently reside, from a financial perspective it would make sense for both of you to declare Texas as your state of legal residence. Just be aware that if you and your wife do this, you should be prepared to register to vote in Texas and register your vehicle(s) and get driver's licenses in Texas.

From what you have posted, it sounds like your wife is currently a resident of Illinois and would not be eligible to claim Arizona as her state of legel residence. She can't claim Arizona simply because that's your state of legal residence. Has she ever lived there? Done in Arizona any of the things listed above?

Edited to add: It appears that the law itself is retroactive to the beginning of 2009, but I'm not sure how that would apply in your situation. It looks like the law is designed to allow military spouses to keep one state of residence for tax and legal purposes while moving from place to place on PCS orders with their husband or wife. In that case, a military spouse under MSRRA could get a refund of 2009 withholdings from the state they are currently residing in, if they claim a different state for legal residence purposes. I'm not sure if a spouse can get a refund of withholdings from a state that they aren't currently living in, but it's probably worth it to find out.