Taxation of Non-Resident Military Members and their Spouses

  • Published
  • 17th Training Wing Legal Office
GOODFELLOW AIR FORCE BASE, Texas --  Recent cases indicate that some service members who have lived in the District of Columbia, but who are legal residents of other states or tax jurisdictions, may have been referred to debt collectors based on erroneous reports for owing unpaid income taxes. In some cases, the member has long since had a permanent change of station or retired before the first collection notice is sent. If you have received such a notice, you may be unsure of how to resolve this issue. Know that the Service Members Civil Relief Act provides that a member will not be taxed by multiple tax jurisdictions when moving to a different state due to military service. Military spouses may face similar collection efforts and there are protections for spouses accompanying service members as well.

The Military Spouses Residency Relief Act is intended to benefit spouses of military personnel who move into a state to be with the service member. Any income earned for services performed in such a state will be exempt from the new state and local income tax and withholding. Instead, the spouse’s state of legal residence would remain the taxing state.

For example, a spouse who is a California resident might move from California to Mississippi to live near Keesler Air Force Base, which is their military spouse’s duty station. Assuming the spouse wishes to retain his or her California residency or domicile, and intends to return to the state, any wages the spouse earns in Mississippi would be exempt from Mississippi income tax withholding. The spouse would instead pay and report state income taxes to California. Employers are generally not required to withhold income taxes owed to other states if they do not have an established office or physical presence in the other state, which means you may owe the state of California when you file taxes.

The Military Spouses Residency Relief Act addresses only tax law concerning income earned in nondomicilliary states; it does not change the rules for establishing and proving legal residency. Understanding the meaning of “legal state of residency” or “domicile” and knowing how to prove it are keys to understanding this law. A spouse does not “inherit” the domicile of the military member through marriage. Domicile must still be demonstrated or proven under the rules that have always been in place. For example, you must be physically present in a state in order to establish residency with that state.

For assistance in clarifying this law, please contact the Legal Office for an appointment to meet with a legal assistance attorney. You may also check with the appropriate state tax authorities for any rules they may have put out with respect to refunds for the 2015 tax year.