Military spouses may soon find filing taxes a little less confusing if H.R. 5428, the Military Residency Choice Act, is signed into law. The bill aims to make establishing and maintaining state residency much easier. Currently, the law can be very confusing and many families may be filing their taxes incorrectly without knowing it.
Under the Service Members Civil Relief Act, military service members can keep their residency in one state no matter where the military sends them. For the purposes of filing taxes, that means that if a service member enlisted in the Navy in Alabama and is currently stationed in Virginia they only pay income tax to Alabama, not Virginia.
It isn’t that simple for military spouses however. Prior to 2009, military spouses had to change their residency every time they moved to a different state with their service member. This made filing taxes and voting difficult. It prevented many military spouses from finding employment after each move.
In 2009, the Military Spouse Residency Relief Act (MSRRA) made maintaining residency in one state possible for military spouses. A military spouse simply had to establish residency in one state and was then able to keep that no matter what state the military sent them to next. The MSRRA does not allow military spouses to claim the residency of their service member however unless that was their state of residency when they were married. It also does not allow military spouses to randomly decide which state they will claim residency in.
Under the proposed Military Residency Choice Act military spouses will be able to use the same state of residence as their service member even if they have not lived in that state.
They will also be able to vote through absentee ballot for that state as well. This does not let military spouses keep their driver’s license from that state though; that is a state by state case.
H.R. 5428 specifically states:
The spouse of a service member may elect to use the same residence for purposes of taxation as the service member regardless of the date on which the marriage of the spouse and the service member occurred.
This bill is only in the early stages of the process of becoming law. It was introduced in the House of Representatives and referred to the House Committee on Veterans’ Affairs. If it does pass, it will go into effect 90 days after the enactment. That doesn’t help military spouses for this tax season, but perhaps by next year it will have passed.
In the meantime, ask yourself what the most beneficial option will be for your family.
Is your spouse’s state of residency one with harsher tax laws? Is it worth it to change your residency?
Seven states do not have personal income tax including: Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming. New Hampshire and Tennessee also do not have income tax, but they do have tax interest and dividends.
If you earn an income and your current residency is in Florida and your military service member maintains Alabama as their residence, it could be beneficial to maintain a Florida residency where there is no income tax. While the MSRRA and the proposed Military Residency Choice Act are intended to make taxes easier for military spouses, it may be wise to consult a tax specialist if you have questions.
Remember, you cannot choose a random state to be your state of residency. You must establish residence by living in that state and maintaining sufficient contacts in that state. That can include owning property in the state, holding professional licenses in that state and voting there as well.