On Dec. 31, 2018, President Donald Trump signed the Veterans Benefits and Transition Act of 2018.
The new bill amended the Military Spouses Residency Relief Act to allow spouses to choose the same state of residence as their service member for tax filing and voting purposes, regardless of whether they have ever lived in the state.
Prior to this law, spouses could only claim the same state of residence if they and their service member were from the same state. For example, a Texas service member marries a spouse from North Carolina. When they moved to Fort Knox, the service member could continue claiming Texas residency under the Servicemembers Civil Relief Act, but the spouse's income would be taxed to Kentucky, requiring the couple to file separate state returns. Under the new law, both are able to claim Texas.
This creates the possibility for tax savings. Many service members are residents of states with no income tax, such as Texas or Florida. Spouses of these service members now have the option to claim those states without having to go through the steps of establishing residency.
In the above example, the spouse could claim Texas and not have to pay any state income tax on the money earned while living in Kentucky. If taxes were withheld to Kentucky, the spouse could get that money refunded by filing a nonresident return. These changes apply to tax year 2018, but are not retroactive to previous years.
Because this law is new, many states are still setting up procedures to take advantage of its provisions. The Fort Knox Tax Center has contacted the Kentucky Department of Revenue to notify them of this change and ensure they are in compliance.
Free tax return preparation is available through the tax center for active duty service members, retirees and their dependents. The tax center is located in Pike Hall, Bldg. 1310. Appointments can be made in person or via phone at (502) 624-0044.