Military Taxes and Residency

If you’re in the military, you’re probably taxed in your state of legal residence rather than in the state where you’re stationed.

To establish legal residence in a state, you usually must prove you live — and intend to continue living — there. However, each state has its own set of rules for proving your intent to legally reside in a state. These actions can help prove your residency:

Tax rules for military income

Members of the military receive many different types of pay and allowances. For federal tax purposes, some types of pay and compensation are included in gross income, while other compensation isn’t.

Pay and compensation included in gross income include:

  • Active-duty pay
  • Hardship-duty pay
  • Bonuses

Pay and compensation not included in gross income include:

  • Moving allowances
  • Combat-zone pay
  • Disability pay

To learn more, see Publication 3: Armed Forces’ Tax Guide at www.irs.gov.

Some states follow the federal tax rules regarding the amount and types of compensation excluded from gross income, while other states don’t.

Military spouses are now taxed much the same as military members. This is due to the Military Spouses Residency Relief Act of 2009 (MSRRA). Under this act, military spouses can maintain their original states of residence. This is true even if they move to states where their spouses are stationed, as long as they meet these requirements:

  • The spouse accompanies the military member to a duty-station state outside the home state. The military member must be making the move on military orders.
  • The spouse is in the duty-station state solely to be with the military member.
  • The spouse is a legal resident of the same home state as the military member.

If nonmilitary spouses meet these three requirements, their earned income while in the duty-station state won’t be taxed by that state. This applies even if such income might be subject to tax in a spouse’s home state. Likewise, the spouse’s property isn’t subject to tax in the duty-station state.

So, the military income earned by a service member and nonmilitary income of a spouse are exempt from state tax in the duty-station state. However, to apply, they must meet all three MSRRA requirements. Both spouses are subject to income and property taxes in their home state.

To learn more, visit your state’s tax office website.

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