Being a military spouse and living in a military town, this subject is relevant to many of the people in my life and most of my clients, and most don’t understand it one bit! The Military Spouse Residency Relief Act (MSRRA) was signed into law in 2009 by President Obama to help alleviate the burden of having to file separate state tax returns from your servicemember-spouse and minimize the state residency-related identity crises that I know has plagued many of us.
So what does this act mean? Say you and your husband (or wife!) are Florida residents, and your husband joins the Army and is stationed in North Carolina. Your husband retains Florida residency as that is his “home of record” with the Army, even though he is physically living in North Carolina. Previously, as the spouse, if you got a job in North Carolina, you would automatically be a North Carolina resident for tax purposes. Now, you have a choice. You can choose to become a North Carolina resident, or, you can choose to retain your Florida residency. Generally, you are going to want to keep that Florida residency, as Florida has no state income tax! So, not only is this helpful from a tax reporting standpoint, it’s helpful from a financial standpoint as well!
However, there are some rules that must be followed. First, if you are going to choose state residency of any state other than the one in which you are currently present, your spouse has to be a resident of that state as well. So, in the preceding example, if your husband is a North Carolina resident, you cannot keep your Florida residency. Secondly, you cannot choose to be a resident of any state just because your spouse is a resident, you must actually legally be a resident of this state as well. So if you are from Massachusetts, your husband is from Florida, you are stationed in North Carolina together, and he keeps his Florida residency, your only option is North Carolina residency. You can’t keep Massachusetts and you can’t pick up Florida unless you become a legal resident of Florida as well.
Could you benefit from taking advantage of this act? If you have paid state taxes to a state of which you are not truly a resident, you can file an amended state return as far back as three years to receive a refund of these taxes. I do know that North Carolina, for instance, will request to see substantial proof that you are a legal resident of another state, such as voter’s registration, a driver’s license, and/or vehicle registration. Need my help on filing some amended returns to get your state tax refunds? Get in touch!