Establishing and keeping a home state

April 04, 2016 : H&R Block

Military Spouse Residency Relief Act for military families

Moving an average of once every two or three years, military families may struggle with understanding their tax and home-state rights. This is especially true since new rules for military spouses went into effect in 2009 and each state has implemented them differently. However they’re implemented, military residency rights are the same across the nation. Service members and their spouses should know these rights so they can benefit from their legal protections.

There’s no place like home

While some people consider their home state part of their identity, a home state also impacts important financial and logistical situations. Residents vote, pay taxes, get driver’s licenses, register vehicles and more in their state. Switching residency every two or three years would be burdensome to military families. Additionally, some states have more favorable taxes than others, which is one reason why military families may want to keep their home-state residency.

Who gets residency relief

The good news is that military members can keep their home-state residency when the military sends them to a different duty state. Their home state is their state at the time they entered military service. Military spouses may also qualify to keep their home state if they:

  1. shared the same home state as their military spouse and
  2. moved to comply with their spouse’s military orders.

Residency relief for taxes

Military employers should withhold income taxes for service member’s home state rather than duty state. A military service member earning only military pay while in the duty state will not need to file a tax return in the duty state. However, if the military service member gets a second job, their non-military income is taxable by their duty state and the service member must file a tax return there.

A military spouse’s income is only subject to their home-state tax. If a military spouse earns income while in the duty state and the employer withholds duty-state taxes, the couple will need to file a state tax return in the duty state to receive a refund of those taxes paid.

Working with duty states and employers

Some states make it more difficult for military families to exercise their residency-relief rights than others states. Some military families may have to complete additional tax worksheets, attach specific documentation, or report their non-taxable income on their state tax return, while others will not. However complex the filing process, military families should know they still have a right to maintain their home state and enjoy any of its tax benefits.

Likewise, some employers may accommodate military spouses more readily than others. If a military spouse’s employer does not withhold their home-state taxes, the military spouse may have to make quarterly estimated payments to their home state to ensure they do not owe interest or penalties when they file.

Most states provide a form that the qualifying military spouse may file with his or her employer to exempt duty-state tax withholding. This will relieve the couple of a filing requirement in the duty state under most circumstances. The form will also allow the employer to withhold home-state taxes for the military spouse.

Military families who find they have a filing requirement in the duty state should follow specific military filing instructions with that state to receive a refund of any taxes they may be due.

If military families have questions about their residency rights, they should contact their state tax office, Military OneSource or their qualified tax professional.

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