There is no doubt that military families live unconventional lives. Our resumes boast positions held all over the country and, in some cases, all over the world. We tend to live very different lives when compared to our civilian counterparts, but yet are still often compared to civilians for tax purposes. Fortunately, we have seen some relief in the past few years, as is the case with the Military Spouse Residency Relief Act (MSRRA).
In 2009, the MSRRA was passed by Congress to relieve military spouses of certain income tax laws when they move due to their active duty spouse’s orders.
What does this mean?
Normally a taxpayer would pay income tax to the state in which the income was earned, but this law allows for military spouses to instead pay income taxes to the state of their legal residence.
For example, my husband and I are legal residents of Florida but currently reside in Oklahoma due to military orders. I can choose to have any earned income I receive in Oklahoma taxed to Florida instead. Florida does not collect income tax, so my earned income is therefore exempt from income tax.
** This only works towards earned income. Rent income and income from the sale of a home would not be included in MSRRA. **
Who does this apply to?
For a spouse to be covered by MSRRA, (s)he must:
- Currently live in a state other than his/her state of legal residence;
- Live in the new state solely to be with the servicemember; AND
- The servicemember must be on military orders in the current state.
Some states also require that the servicemember and spouse have the same state of legal residence.
Ask for help!
The MSRRA can be very confusing, especially since each state has its own interpretation of it. There are many myths surrounding the MSRRA (no, you cannot claim any state as your legal residence) so find a trusted professional to discuss your questions with. The legal office on your nearest military installation is always a good place to start. As always, don’t hesitate to reach out to Military Planners with any additional questions.