facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog external search brokercheck brokercheck Play Pause
Military Finances 101: Tax Relief for Military Spouses Thumbnail

Military Finances 101: Tax Relief for Military Spouses


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:

  1. The residence or domicile of the servicemember
  2. The residence or domicile of the spouse
  3. 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

Most financial and tax advisors/planners don't concentrate their efforts on current and retired Senior Military Officers and NCOs. They might not even know about your unique situation and benefits. That is why we think you should work with a financial planner that deals with your issues each and every day. Use the button below to schedule a free initial consultation to see how we do things.

If you found this article useful, you might like the following blog posts.

Retired Military Finances 201: SECURE 2.0 Intel

Military Finances 101: 2023 by the (Tax) Numbers

Get a Bigger Tax Refund than Expected the Year You Retired from the Military?

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by C.L. Sheldon & Company, LLC ), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. C.L. Sheldon & Company, LLC does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to C.L. Sheldon & Company, LLC website or incorporated herein, and C.L. Sheldon & Company, LLC takes no responsibility therefore. All such information is provided solely for convenience, educational, and informational purposes only and all users thereof should be guided accordingly. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from C.L. Sheldon & Company, LLC . To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. C.L. Sheldon & Company, LLC is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the C.L. Sheldon & Company, LLC ’s current written disclosure statement discussing our advisory services and fees is available for review upon request. DISCLAIMER OF TAX ADVICE: Any discussion contained herein cannot be considered to be tax advice. Actual tax advice would require a detailed and careful analysis of the facts and applicable law, which we expect would be time consuming and costly. We have not made and have not been asked to make that type of analysis in connection with any advice given in this blog post. As a result, we are required to advise you that any Federal tax advice rendered in this blog is not intended or written to be used and cannot be used for the purpose of avoiding penalties that may be imposed by the IRS. In the event you would like us to perform the type of analysis that is necessary for us to provide an opinion, that does not require the above disclaimer, as always, please feel free to contact us.