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New Tax Law, New Rules for Military Spouses Thumbnail

New Tax Law, New Rules for Military Spouses

Taxes Military Pay and Benefits

I don't believe anyone who knows anything about the military would argue the point that military spouses have one of the most difficult "jobs" in America. Frequent moves, long separations and career instability are some of the things that make the "job" so difficult. On December 31st the President signed a law (quite honestly with little fanfare) that will help. The changes were included in the Veterans Benefits and Transition Act of 2018 so I wouldn't be surprised if you missed it. 

Military Spouse Tax Relief

When I was on active duty and got married, my wife had to change her residence for taxes every time we moved. I maintained my Texas residency (which I established while attending pilot training) throughout that time period. On Veteran's Day 2009, the President signed into law the Military Spouse Residency Relief Act (MSRRA). MSRRA helped as it allowed a military spouse to establish and maintain the same residence as the military member that he or she was married to, IF the military spouse resided in that state after they were married. In my case, since I was never stationed in Texas (or Florida or other "no income tax state") after we were married my wife had to continue changing her residency for taxes each time we moved. 

That changed on December 31st 2018. Now a military spouse can claim the same state of residency as the military member regardless of whether he or she lived that state. In essence, as some have said, the military spouse can "inherit" the military member's state of residence.

The law states that the military spouse can do that for any tax year beginning in the year the law was signed. That means it applies to all tax years 2018 and later. It would seem to me that if this applies to you, then you can make the claim on this year's taxes.

There are a couple of things to consider though.

  • Based on the original MSRRA, both spouses must live together
  • The States aren't all 100% on board with this and there may be push-back if you do it
  • Depending on how you produce income, it may not be exempt. For instance if you own a business and have employees, the state may attempt (and succeed) to tax the income

Similar Changes for Military Spouses Regarding Voting

As a military spouse absent from your resident state due to accompanying a military member on orders, you have the option to maintain your resident state for voting purposes.

The new law gives a military spouse the option to vote in the state where the military member is a resident as well. This part of the law will go into effect 90 days after December 31, 2018.

Other Considerations

While I haven't seen it in the law, some have stated that this should allow military spouses to keep licenses required for employment in force when moving state to state. To be frank, I'd wait a bit on that one.

Since this law just went into effect, many military spouses will have withholding in the state where they live and are working for 2018. Getting that money back may be tough. Expect that you'll get a letter from the state.

If the new tax rules apply to you or your spouse, get by payroll or HR and change your tax withholding if you employer can do it.

I'm not sure how consumer tax software will handle this issue. You'll have to see.

Staying on Top of Changes

Military and Veteran's benefits change all the time. You really need to stay on top of things or you could literally lose hundreds of dollars in benefits. Or, you could talk to someone who spends all day, every day working with military members, their benefits and their financial future.

If you found this article interesting, you might enjoy the following blog posts:

Military Tax Benefit: Rollover of SGLI Proceeds to a Roth IRA

Military Tax Break: Sale of Primary Residence

Special Tax Break for Junior Military Officers

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