WASHINGTON, D.C. — A new law protects military spouses from being taxed for work performed in states where they’re living outside their home states as a result of military orders.
President Barack Obama signed the Military Spouses Residency Relief Act, an amendment to the 2003 Servicemembers Civil Relief Act, last month.
“This act, among other things, would provide that when a servicemember leaves his or her home state in accord with military orders, the servicemember’s spouse may retain residency in his or her home state for voting and tax purposes, after relocating from that state to accompany the servicemember,” the president said in a White House statement.
The new law means a change in fundamental tax law for military spouses, said Army Col. Shawn Shumake, director of legal policy in the office of the undersecretary of defense for personnel and readiness.
“If a spouse accompanies a military member to a state that is not the spouse’s [state of legal residence] and does so solely to be with the servicemember under military orders, then the income the spouse earns from services performed in that nondomiciliary state cannot be taxed,” he said in a Pentagon Channel interview recently.
But, he warned, some states interpret the act to apply only if the military servicemember and the spouse live under the same roof. “A number of states believe that to get this tax break, or tax exemption, the spouse and the servicemember must have the same domicile,” he said. “Different states interpret this possible requirement differently.”
The law does not necessarily mean that someone who makes their permanent home in one state will never be taxed in the state they’re living in because of a servicemember’s military orders, Shumake said. In fact, he said, the act states only that income earned from work performed in the nondomiciliary state is not taxable. That doesn’t mean the spouse wouldn’t have to pay income tax on such income to the state of legal residency.
“Of course, there are those states that don’t have any income tax at all,” Shumake said. “If the spouse were a legal resident of those states, then they would likely not pay income tax from [work] performed in any state.”
Understanding the meaning of “domicile” and knowing how to prove it are keys to understanding the law, Shumake said.
First, he said, the terms “domicile,” and “legal residence,” are synonymous. A person can have only one domicile at a time. It is one’s primary home or permanent residence, and it’s formed by being physically present in a state and simultaneously forming the intent to remain there for the indefinite future.
“You have to prove your intent by establishing certain contacts with the state, such as voting there, buying property there, getting your professional license there, claiming in-state tuition rates there, registering a vehicle or obtaining a driver’s license there,” Shumake said.
The Military Spouses Residency Relief Act addresses only tax law concerning income earned in nondomiciliary states, the colonel said, and doesn’t change the rules for establishing and proving legal residency.