Spouses who have recently relocated to accompany their spouse, in compliance with military orders, will see tax benefits as early as the 2010 tax preparation season as a result of the Residency Relief Act.
The new law, signed Nov. 11 by President Barack Obama, is an amendment to two sections of the 2003 Servicemembers Civil Relief Act. It also adds provisions governing the determination of domicile of the spouse of an active-duty service member for voting and tax purposes.
Often when the military orders service members to move, spouses who move with them have to pay taxes in a new locality and lose the right to vote at their established home state, the president said in a statement following the signing.
"This legislation is an important means of maintaining the morale and readiness of our armed forces and significantly enhances the ability of our military to effectively recruit and retain these highly valued service personnel," Obama said.
The new law allows nonmilitary spouses to claim the same state of residency as their military spouses beginning with the 2009 tax year, said Capt. Antonio J. Pataca, Legal Assistance attorney, who manages the Fort Meade Tax Assistance Center.
However, the legislation will not allow spouses to retroactively claim the same state as their spouse.
For example, if the military spouse is a California resident and the couple has moved to Maryland and the nonmilitary spouse became a Maryland resident before this act came into effect, Pataca said the spouse cannot retract his or her current residency to reclaim California.
The change will have its greatest effect on service members who came into the armed forces or who have moved to a new duty station recently as a result of military orders and have enough ties to the departing duty station to maintain their residency in the state they were stationed, Pataca said.
He cautions tax payers, especially because the changes are still very new, that it is best to have as many indicators of residency in the claiming state as possible to prove those ties to the nonclaimed state.
"One of the biggest issues I see with Legal Assistance clients is that they pay income tax in one state, vote in another and own real estate in yet another, making residency in any one place a hard point to argue," Pataca said.
"Make sure that you establish residency in the state you want. And keep records of everything you do -- get a driver's license, register cars, conduct real estate transactions in that one place."
Spouses, particularly in the seven states without income tax, will want to claim residency in the state with the greatest tax benefit. But if they have already established residency in another state and it is currently different from the military spouse's, they will not be able to claim new residency, Pataca said.
Military spouses who have been at Fort Meade for years generally do not fall under the prospective provisions of the Military Spouses Residency Relief Act, he said. It is understood in the state of Maryland that if you have lived here six months, residency is established.
Each case should be approached individually to consider how the law applies, Pataca said. However, the final determining factor is the number of family ties to the previous state.
A driver's license alone from another state will not establish residency," he said.
The Tax Assistance Center will be available to help service members and their families establish eligibility for state residency and to help spouses who claim residency under the Military Spouses Residency Relief Act fill out appropriate forms for withholding tax amendments and refunds for the current year begining Jan. 25.
For more information, call the Fort Meade Tax Assistance Center at 301-677-9762.
This article is part of a series examining tax-related issues. If you are interested in seeing an issue addressed by post tax professionals in this column, call Capt. Antonio J. Pataca, Legal Assistance attorney, at 301-677-9536 or Soundoff! at 301-677-6806.
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