Tax season is just around the corner and this year service members and their families have some new opportunities for savings, as well as a couple areas where they may have to pay extra.
Some military spouses could receive potentially thousands of dollars in state tax refunds for tax year 2018, thanks to a new law that took effect Dec. 31 — and lessen or eliminate their tax bill in the future.
The Veterans Benefits and Transition Act of 2018 allows military spouses to choose the legal residence of their service member for state and local tax purposes, as well as for registering to vote — regardless of whether the spouse has ever lived in that state.
The law applies for taxes retroactively to tax year 2018, according to Army Lt. Col. David Dulaney, executive director of the Armed Forces Tax Council. So spouses who choose to claim their service member’s state now could potentially get refunds from the state where they paid taxes. If their newly claimed state has no income tax, or if it’s a lower tax rate, then the spouse comes out ahead.
Under the long-standing Servicemembers Civil Relief Act (SCRA), troops can maintain their legal residence as they are required to move around with the military, which allows them to vote and pay taxes in their state of legal residence, without having to pay taxes in two states.
A significant number of troops claim their legal residence in states that have no state income taxes – such as Florida and Texas. Under the new law, military spouses can claim these states based solely on their service member’s state of legal residence. So the spouse will pay no state income taxes, either.
One of the biggest, and possibly most lucrative, changes to law this tax season allows military spouses to file taxes in their service members’ state, even if they aren’t in the same state.
“In 2018, a military spouse may have had to file a different tax return than the service member did, because they have what we call split legal residency,” Army Lt. Col. David Dulaney, executive director of the Armed Forces Tax Council said in a Friday call with reporters. “Now, that’s no longer a concern. Our military spouses can now elect to use the legal residence of the service member for filing their state and local taxes.”
Service members can already legally keep their residency in one state, even if they don’t live there, since troops move so often. However, spouses were forced to change their legal residency when they moved for tax or voting purposes.
According to the Federation of Tax Administrators, states with no income tax are:
- South Dakota
Or, in some cases, the service member’s domicile state has a lower tax rate. So the spouse could pay less in taxes. It’s a choice that spouses will make, but they didn’t have the choice before.
“This is quite the expansion of rights for military spouses,” said Dulaney. Under the previous law, changed by the Military Spouse Residency Relief Act in 2009, a spouse could vote in and pay taxes to the same legal state of residence as the service member, but had to establish legal residence by actually living in that state.
Read more at militarytimes.com