Discussion:New State Tax Rules for Military Spouses

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Discussion Forum Index --> Tax Questions --> New State Tax Rules for Military Spouses

Fentax (talk|edits) said:

12 November 2009
President Obama signed s.475 yesterday essentially increasing state budeget shortfalls for states with heavy military presence. This bill, because it is almost impossible for states to administer, essentially will make it impossible for a state to tax the income earned in that state by a military spouse if the that spouse claims a domicile the same as the military member and is only present in the current jurisdiction b/c of the military members orders. It won't take but a few days for spouses to determine they are all domiciliaries of a select few states that impose no income tax.

It is effective for 2009 tax year adding to the burden on the states and employers who will be hit with requests for withholdings refunds.

Big change that happened quickly and with little fanfare.

Dennis (talk|edits) said:

12 November 2009
Domicile is something that is established, not decided on. There are laws...and then , apparently, there are tax preparers that don't much care...♫

R2 (talk|edits) said:

12 November 2009
Appropriately signed on Veteran's day.

Presumably, a state would be able to tax the in-state wages of a miltary spouse if she votes in that state's elections.

Sheldon (talk|edits) said:

8 December 2009
I have a new client that thought this had always been the law, so he was surprised by it and now is concerned that he needs to file state returns for his spouse in prior years. The only income of the military spouse was SS disability and savings interest/dividends.

Since the state that I looked at indicates they must file if they are the spouse of an "exempt military person" then it seems that he does need to do file in this state for her. Since they maintained a place of residence more than 1/2 of the year, I'm recommending they file. I'm still looking at the state instructions and forms as to how to file and how much potential tax, but any thoughts on this situation are appreciated. D.C. is the state and I haven't dealt with that entity before. Do we just file a separate return for her?

KatieJ (talk|edits) said:

9 December 2009
The District of Columbia defines a resident as a person who is either domiciled in the District, or is domiciled elsewhere but maintains a place of residence in the District for more than 183 days of the taxable year. D.C. Code Ann. § 47-1801.04. As is the case in many states, the District would consider a military member who meets that definition to be a resident if it were not for the SCRA. Since before 2009, SCRA does not protect the civilian spouse of a military member from being treated as a resident by a state where he or she meets that state's statutory definition, like many other states the District considers the civilian spouse to be a resident for tax purposes as long as the 183-day test is met.

As you've no doubt seen in the D-40 instructions, D.C. (before 2009) requires the civilian spouse of a nonresident military member to file as a resident if he or she maintained a place of residence in the District for more than 183 days of the taxable year. A little farther on, the instructions tell us that the resident spouse of a nonresident military member must use the MFS status.

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