New Military Spouse State of Residence Election

Posted by Lee Reams Sr., BSME, EA on

The Veterans Benefits and Transaction Act of 2018, sponsored by Senator Jon Tester of Montana, became public law on 12/31/2018.  Sec. 302 of that legislation added the following election:

Election—For any taxable year of the marriage, the spouse of a servicemember may elect to use the same residence for purposes of taxation as the servicemember regardless of the date on which the marriage of the spouse and the servicemember occurred.”

The election shall apply with respect to any return of State or local income tax filed for any taxable year beginning with the taxable year that includes the date of the enactment of this Act. Thus, this provision is effective for 2018 and future years.

Benefit - The benefit of this election is that a spouse of a servicemember stationed in a high-income tax state can elect the state of residency of the servicemember whose resident state has no or low state income tax and not be subject to the state taxes where his or her spouse is stationed.

Example – Jack, a servicemember whose state of residence is Texas, is stationed in California. Sally, Jack’s spouse, is employed in California and prior to this law change was required to pay California tax on her wages earned in California. Under this new law, Sally can elect her residency to be the same as Jack’s – in this case Texas – which has no state income tax.   

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