When I entered Active Duty (shortly after the earth cooled), military spouses were required to become a resident of and pay income taxes to the state where the servicemember was stationed. A few years ago, that changed and the spouse could adopt the resident state of the servicemember. In legislation signed into law in January the rules changed again.
The Advancing Uniform Transportation Opportunities (AUTO...I wish they'd close the acronym shop in Congress) Act expanded the options concerning residency for tax purposes for military spouses. The law states the following:
- A spouse of a servicemember shall neither lose nor acquire a residence or domicile for purposes of taxation with respect to the person, personal property, or income of the spouse by reason of being absent or present in any tax jurisdiction of the United States solely to be with the servicemember in compliance with the servicemember's military orders.
It goes on to say:
- For any taxable year of the marriage, a servicemember and the spouse of such servicemember may elect to use for purposes of taxation, regardless of the date on which the marriage of the servicemember and the spouse occurred, any of the following:
- The residence or domicile of the servicemember
- The residence or domicile of the spouse
- The permanent duty station of the service member
Interesting. So, What Does it all Mean?
The biggest change is that the spouse now has the option of keeping his or her state of residence when marrying into the family. Or he or she can adopt the state of residence of the servicemember. And finally, if it makes sense, he or she can become a resident of the state where they are stationed. Maybe even more importantly, the servicemember can elect to use his or her spouse's state of residence for tax purposes. A lot of options.
It also appears that you don't have to register all of your vehicles in the servicemember's name to avoid state property taxes on the vehicle.
What it Doesn't Mean
The law doesn't give you carte blanche. A key clause a lot of people miss when reading the law is, "present in any tax jurisdiction...to be with the servicemember in compliance with the servicemember's military orders. (emphasis mine)". That means if you're stationed in VA and you and your spouse are TX residents and you decide to geo-bach for a year while you go to the Air War College in AL, your spouse becomes a VA resident as he or she isn't in VA to be with you. Same could apply for remote tours (but I'd like to see it decided by the courts to be sure one way or another).
The law also gives more options to the spouse than the military member. Going back to the original Servicemember Civil Relief Act (SCRA), the tax exclusion only applies to the servicemember's military pay. If the servicemember has a part-time gig or works as a civilian on terminal leave, the income is taxed (as non-resident income) by the state where it is earned.
What I Don't Know
It is a little unclear when the law becomes effective. Normally that is the year of enactment. But the language of the law says, "any taxable year of the marriage." So maybe an amended return can be filed for prior years.
The law doesn't address whether a spouse can change back to his or her state of residence (prior to the marriage) if he or she has been married for a while and changed residence to that of the servicemember (as an example). If he or she can, that could be useful for getting in-state tuition for a child.
We'll need to wait on both of these (and other issues) until the IRS issues regulations.
One Other Important Change
The law also includes some help for military spouses with a professional license. The law basically states that in the case of a military spouse, the state where the military member is stationed must accept the professional license of the spouse issued by another state. There is a little more to it that just hanging up your shingle, so you'll want to check into the details.
Military Finances are Different
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