The Military Spouses Residency Relief Act (MSRRA) was signed into law on November 11, 2009. This amends the Servicemembers Civil Relief Act (SCRA) granting military spouses similar rights with regards to residency for tax and property purposes. The SCRA protects a Servicemember’s military pay from income taxes of the state where he or she is stationed unless that state is also the Servicemembers declared state of residence.

There is a distinction between “home of record” and the declared state of residence. Residence must be established by physical presence in the state and with the clearly indicated simultaneous intent to make the state the permanent residence. Thus, a Servicemember that is assigned to a duty station in Texas (one of several income-tax free states) for example, may establish residence in Texas for tax purposes. The MSRRA states that if a Servicemember is entitled to SCRA residence tax protection, their spouse is entitled to the same protection if the spouse establishes and maintains the same residence as the Servicemember. This is not to say that a spouse may choose residence to be the same state as their military spouse, especially if he or she cannot meet the requirement of physical presence in the state and also show intent to make the state their permanent home.

Here are a few scenarios:

-          A soldier and her spouse take the appropriate steps to establish residency in Texas. The soldier is then assigned to Virginia and her spouse moves with her. The SCRA and MSRRA work in concert to protect both individual’s income from state taxes in Virginia.

-          A soldier has established residence in Texas. The soldier is then transferred to Virginia where she meets and marries her spouse who lives and works in Virginia. In this case, the MSRRA does not permit the spouse to claim Texas for tax purposes. Thus, the spouses income may be taxed by the state of Virginia.

-          A soldier and her spouse take the appropriate steps to establish residency in Maryland. The soldier is assigned a duty station in North Carolina and her spouse moves with her. Here too the SCRA and MSRRA work together to protect the soldier’s and her spouse’s income from North Carolina state income-tax should they decide not to establish residency in that state. However, it is incumbent on the spouse and soldier to file income-taxes in Pennsylvania.

The law does take effect for the tax year in which it was signed thus covering 2009. However, as the bill was signed into law late in the year, state tax forms for 2009 do not reflect the changes in tax law. Soldiers and their spouses can expect some inquiry into their residency claims, and be prepared to provide appropriate documentation as evidence although it is not yet clear what documentation will suffice.

This is only an informational document and does not constitute legal advice. For best results, Servicemembers and their spouses should consult the appropriate military legal and tax authorities regarding this matter. Updates will be posted as more information becomes available regarding the implications of the Military Spouses Residency Relief Act.