By Sheila Olsen, Fort Sill Installation Tax Assistance CenterJanuary 31, 2019
FORT SILL, Okla. (Jan. 31, 2019) -- The Military Spouses' Residency Relief Act (MSRRA) and the Veterans Benefits and Transition Act of 2018, Section 302 offer benefits for military personnel and their family members.
The MSRRA amends the Servicemembers Civil Relief Act (SCRA) so that the spouse of a service member does not lose, or acquire a residence, or domicile for purposes of taxation by reason of being absent (leaving that state) or present (arrival at a new state) in a tax jurisdiction of the United States solely to be with a service member in compliance with the service member's military orders (PCS orders) if the domicile of the service member and the spouse are the same.
This created a same state rule.
Service members and their families must understand many rules during the tax season.
Under the MSRRA, a state cannot tax income earned in that state by the military spouse if the military spouse and the service member have established a common tax domicile outside the state and are present in the state solely due to the service member being assigned to that state.
For example, Pvt. Joe Snuffy and his spouse have established Texas as their common tax domicile and are stationed at Fort Sill pursuant to Snuffy's PCS orders. His spouse works for Lawton Public Schools. Oklahoma cannot tax her income because the Snuffys have Texas as their common tax domicile, and they are here solely due to the orders that brought Snuffy to Oklahoma.
The Veterans Benefits and Transition Act of 2018 (VBTA) fixed the same state rule problem for military families with split legal residences.
In this instance, Snuffy is from Texas and his spouse is from Arkansas. Again, they are here because Snuffy received orders to Fort Sill. Since they did not have a common tax state, if Snuffy's spouse works in Oklahoma, only her income earned in Oklahoma would be taxable to Oklahoma on a nonresident return. Snuffy's income is not taxable because his tax state of Texas has no income tax. If Snuffy's spouse did not work in Arkansas and had no income from any other state except for the job in Oklahoma, no other state return will be needed.
The same state rule remains, but now spouses can simply elect to have the same residence for state and local tax purposes as the service member.
For example: The above scenario with Snuffy from Texas and his wife from Arkansas with both here due to orders to Fort Sill. If Snuffy's spouse had income in Oklahoma, with this new change, she can elect Texas and then they both would have a common tax state. This means none of her income earned in Oklahoma would be taxable to Oklahoma.
Following an election, the factors previously used to determine the spouse's legal residence, such as the spouse's physical presence in a particular state or the identity of the state in which the spouse maintains a driver's license, vehicle or voter registrations, or professional licenses are no longer relevant.
In other words, if a service member is a legal resident of a particular state for tax purposes, the spouse can unilaterally elect to also be a resident of that same state.
Spouses can make this election for state and local returns beginning with taxable year 2018.
However, taxpayers should proceed with caution. MSRRA does not relieve the requirement to file a state tax return.
As this was signed Dec. 31, by President Donald Trump, many state tax and revenue offices are updating their forms and programs to adhere to this change. Please check with your certified public accountant, tax attorney, or tax professional for any further guidance or questions.
The Fort Sill Income Tax Assistance Center is available to service members and family members with valid military identification. Additionally, a legal representative filing on behalf of an eligible service member or family member may file on the decedent's behalf. Taxpayers should ensure they have all their information before filing a tax return including a copy of their prior year's tax returns if possible.
For more information, call the Fort Sill Income Tax Assistance Center at 580-442-6445/8819.