Members of the U.S. Armed Forces and their families are routinely required to move across state and national borders while serving orders for the military. In order to provide a sense of comfort and to protect from unexpected state taxes, Congress has implemented laws allowing military personnel and their spouses to maintain permanent residences for tax purposes while moving from state to state if specific criteria are met.
The Servicemembers Civil Relief Act (SCRA) passed in 2003 is legislation passed by Congress designed to provide relief for active duty military. Formerly known as the Soldiers’ and Sailors’ Civil Relief Act, this set of laws was originally enacted to protect service members from civil actions including divorce, bankruptcy, and foreclosure while they were away at war. The act has been in effect since the dawn of World War II in 1940 and has been amended more than twelve times to meet the changing needs of our servicemen and women.
Active duty military personnel are often required to move in order to fulfill their duties. For this reason, the SCRA states that an active service member does not need to change his or her state residence for tax purposes if he or she is moving only to comply with military orders. This feature allows service members the simplicity of filing the same state tax return each year and typically removes the requirement of filing part-year and nonresident returns. Up until 2009, this benefit was only available for service members; nonmilitary spouses were required to change state residency with each move, causing confusion and hassle for military families. In 2009, the Military Spouse Residency Relief Act (MSSRA) was signed to alleviate the residency issue for service members and their spouses. The MSSRA states that a military spouse does not need to change state residency for tax purposes if they are moving to accompany a service member in compliance with military orders.
The state in which military personnel must file a resident tax return is their state of legal residence. This is the place that is considered one’s permanent home and is usually determined by the state where a service member enlists or commissions into the military. This will also be the state where the military withholding is paid to. If no paperwork is actively filed to change residency, then the state of legal residence will remain the same. In addition to tax filing, legal residency determines state specific benefits such as voting eligibility and in-state tuition rates. Military members may change their state of legal residence at any time as long as they are physically present in the new state, intend to make the new location their permanent home, and intend to abandon their former state of legal residence. While intent is not made up of a single factor, it can be demonstrated by performing actions that a typical resident would. This includes activities such as obtaining a driver’s license, registering a vehicle, or registering to vote.
Military spouses may keep their state of legal residence as long as it is the same state as their active duty spouse and they are moving to comply with military orders. While this is a great benefit, there are still many situations in which a military couple living together or apart must file two separate resident state tax returns. Each state has different procedures regarding these circumstances so it is important to consult your tax advisor. If you have questions regarding these rules and how they apply to your specific situation, please do not hesitate to call your L&B professional at 858-558-9200.