Do Military Spouses Pay State Taxes?
A military spouse's state income tax obligation is determined by their legal residence, not just their physical location due to military orders.
For working military spouses, frequent moves due to a permanent change of station can create confusion about state income taxes. A primary question is which state has the right to tax their wages, which can lead to incorrect tax payments, missed refund opportunities, or even double taxation. Federal rules are designed to provide stability by allowing a spouse to maintain an official home state for tax purposes, a status that does not automatically change with every move. This legal home state is called a domicile.
Understanding this framework is the foundation for tax protections afforded to military families, preventing the need to establish new tax residencies at each duty station.
Establishing Your State of Legal Residence
The framework for state taxation of military spouses is based on the concept of “domicile,” which is legally distinct from “residence.” While you may reside in many places where you physically live, you can only have one domicile at a time. Your domicile is the state you consider your true, fixed, and permanent home, and the place to which you intend to return whenever you are away. This single location governs your legal and financial obligations, including which state has the primary right to tax your income.
States look for evidence that you have established meaningful connections to determine your domicile. Actions that demonstrate your legal ties to a state include:
- Registering to vote
- Holding a driver’s license
- Registering your vehicles
- Maintaining bank accounts
- Listing the state as your address on legal documents like wills
- Owning real property in the state
No single factor is definitive, but together they provide a clear picture of your legal home, regardless of where military orders have temporarily placed you.
Qualifying for State Tax Relief
Federal law, primarily the Military Spouses Residency Relief Act (MSRRA), offers state tax protections for military spouses. The principle of MSRRA is that a spouse’s income from services performed, such as wages and salaries, is taxed by their state of domicile, not the state where the income is earned. Recent legislation, the Veterans Auto and Education Improvement Act of 2022, expanded these protections and made it easier for spouses to qualify.
Under current rules, a military spouse can be exempt from a new state’s income tax if three conditions are met:
- The servicemember is present in the new state in compliance with military orders.
- The spouse is in that state solely to be with the servicemember.
- For the tax year, the couple elects to use the servicemember’s domicile, the spouse’s domicile, or the servicemember’s permanent duty station as their residence for taxation.
This third condition, updated by the 2022 law, gives families significant flexibility in choosing the most advantageous state for filing their taxes, regardless of whether the spouse has ever lived in the servicemember’s domicile. This protection applies to income from services, but not typically to income from a business or rental property located in the new state.
How to Claim the Tax Exemption
To claim the tax exemption, you must first stop state income tax from being withheld from your paycheck. You must provide your employer with a state-specific withholding exemption certificate. The name of this form varies by state, but it serves as your official declaration that your wages are exempt from that state’s income tax under federal law. On this form, you will certify under penalty of perjury that you meet the requirements for the exemption. It is wise to have copies of your spouse’s military ID card, the servicemember’s Leave and Earning Statement (LES), and their military orders on hand in case they are requested.
Submitting this form to your payroll or human resources department should stop any further state taxes from being taken from your pay. The second part of the process involves your annual tax filing. If any income tax was mistakenly withheld by your new state before you filed the exemption form, you must file a nonresident state tax return in that state to claim a full refund. Concurrently, you are required to file a resident tax return in your domicile state, where you must report all income earned and pay any taxes owed.
Considerations for Changing Your Domicile
A military spouse may decide to make their new duty station their permanent home rather than maintaining ties to a previous state. Changing your domicile is an intentional act demonstrated by taking specific steps to sever ties with your old state and establish them in the new one. The actions required to change your domicile are the same ones used to establish it, such as registering to vote, obtaining a new driver’s license, and purchasing a home. Simply living in a state due to military orders is not enough to change your domicile; you must take clear, affirmative steps to show your intent to remain there.
The primary consequence of changing your domicile to the new state is that you will become a resident for tax purposes there. From that point forward, your income will be subject to that state’s tax laws, and you will be required to pay state income tax on all wages you earn. You will no longer be eligible for the tax protections offered by federal law based on your prior domicile. This decision effectively ends the tax relief you were previously able to claim, as you have voluntarily chosen to make the new state your home.