A rule rumored to help military spouses have been talked about for a while now. What does the military spouses residency relief act mean and what can it do for you? We will break down the details in this article so make sure you keep on reading.
Military spouses typically struggle to answer this question: where are you from? The answer would then present a world of complicated decisions such as where to register your car, where to vote in elections, and the most important of all, where to can you file your state taxes.
This is where lawmakers come in and the reason why they created a federal law called the Military Spouses Residency Relief Act. It is meant to help military spouses answer questions related to residency and taxes. However, there has been widespread confusion with regards to this rule.
To fix the problem, a 2019 update to the rule has been made.
Before we get into the details, we suggest that you consult an attorney or accountant who can give legal or tax advice based on your individual situation if you have a residency or tax question.
It’s important for military spouses to understand the definitions of a few legal and military terms.
Domicile. A legal term which meaning can be simply described as “home”. Each person can only have one domicile at a time under the concept on which the state tax system is based. The place where you own property, have your car registered, have a driver’s license, registered to vote, or other official transactions tying you to a specific place can become your domicile. Once you established those official connections in a new location, a domicile is then changed.
Residency. It is the place you live or the address you are currently using. If for example, your legal paperwork originates in Virginia, then your domicile is Virginia. While if you’re physically living in North Carolina, the place then becomes your residency. Wherever you are physically living is where your residency is.
You also have to get to know the term “home of record” used by the Department of Defence for service members. The location where he or she lived when joining the military is where the home record is. Including final permanent change of station (PCS) allowances, it is also used for determining some military entitlements. Only when there is an error on the original paperwork at the time of accession that a home of record is allowed to be changed.
Now let’s get to know the Military Spouses Residency Relief Act (MSRRA). It was first passed in 2009 allowing military spouses to claim for tax purposes the same state of domicile as their service member. This however is only possible if they had established domicile there too.
For instance, you’re a military spouse who earned income in North Carolina but you had established domicile with your spouse in Virginia, you would then be subject to Virginia’s income tax laws instead of the laws in North Carolina.
The purposes of the law is to simplify family tax filing by giving spouses and their service members the right to file state taxes with only one state.
The reason why it sparked a lot of confusion is due to the differences between “domicile” and “residence”. Another reason is because each state also has its own rules and forms when filing for taxes.
A lot of couples have also been excluded because of this rule. Not all military spouses established domicile within the same place of their service member. Despite the provision meant to assist them, many families were still forced to file with multiple states.
More choices were now given to spouses after the law was updated. Military spouses can now choose to file state tax returns in the home state of their service member whether they have ever lived there or not thanks to an updated to the law.
Military spouses now have the ability to file taxes in the same state as their service member starting the 2018 tax year. They can claim the same domicile without setting their foot in the state. They are also given the right to choose to file in the state where their own domicile was established.
The new law therefore gives more options as well as updated other service member’s protections. If you only want to deal with just one set of state tax forms for your family, then you’d be glad this new law was set in place. If the state where your service member is domiciled has lower tax rates or laws that service member friendly living out of state, then you can expect to pay lower taxes.
