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The Military Spouse Residency Relief Act in Action

January 31, 2013 • J.J. Montanaro

Q: Hi, I’m active duty mil­i­tary sta­tioned in Mon­tana. My home of record is located in Wis­con­sin. Accord­ing to the Mil­i­tary Spouse Res­i­den­tial Relief Act Law, my spouse should get taxed for her income from my home of record state, not the state in which she’s employed. I’ve read the law, and she meets every require­ment. I am cur­rently doing our taxes jointly online through H&R block when I noticed that the W2 she received is from Mon­tana. She was taxed from Mon­tana, when she should have been taxed from Wis­con­sin. What steps do I need to take when filing?

–Thomas, Great Falls, Montana

A: After all the fis­cal cliff hoopla in Wash­ing­ton, the IRS is finally ready to start accept­ing tax returns so this is a great and timely ques­tion. Back in 2009 the Mil­i­tary Spouse Res­i­dency Relief Act became law. In a nut­shell, it bestowed roughly the same sort of treat­ment you receive as a mil­i­tary ser­vice­mem­ber to your spouse when it comes to state income taxes. It’s a fairly com­pli­cated law and everyone’s spe­cific sit­u­a­tion varies so it’s always a good idea to touch base with your legal assis­tance office if you’ve got questions.

Since your wife is in Mon­tana solely due to mil­i­tary orders and Mon­tana is not her legal res­i­dence she will not have to pay income taxes to Mon­tana. How­ever, con­trary to your under­stand­ing, she does not just auto­mat­i­cally assume your home of record as her legal res­i­dence. Her legal res­i­dence or domi­cile is estab­lished by liv­ing in a loca­tion and hav­ing the intent to remain or return there. Doing things like reg­is­ter­ing to vote, own­ing prop­erty, hold­ing a driver’s license, and reg­is­ter­ing vehi­cles are exam­ples of things peo­ple do that demon­strate this intent. That being said her legal res­i­dence, Wis­con­sin or some other state, is where she’ll be respon­si­ble for fil­ing and pay­ing (if applic­a­ble) state income taxes.

Since her employer sent money to the State of Mon­tana through with­hold­ing, your wife will have to file a Mon­tana income tax return to get that money back. She’ll just file as a non-resident to get the money that was with­held back in the form of a refund. Obvi­ously, she’ll want to talk to her employer and fill out the appro­pri­ate forms to stop with­hold­ing taxes for Mon­tana (if her employer allows, she may want to send her with­hold­ing to the state of her legal res­i­dence) so you don’t have to jump through all of these hoops in the future.  Good luck.

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