State Question

[Bonnie]

I think I know the answer to this question but want others input. Taxpayer who is resident of Alaska and claims Alaska as their home of record is in the Coast Guard gets stationed in Maine. Marries someone from Ohio who moves to Maine and gets a job there. Maine withholds state taxes from the spouse who is working in Maine. How does this couple file their state taxes?

[Snaggletooth]

Last Year's Law

...was passed in 2009 and created a bizarre twist on a situation like you describe. I think I know most of the answer, and please someone correct if I'm wrong.

The short answer is Ophelia (Ohio) is tax exempt from the state of Maine. They cannot tax her and by rights should not really withhold state tax.

Albert (Alaska) can continue to claim no-tax Alaska as his domicile as long as he is in the military, and be exempt from all other state taxation on his military pay. If he takes a second job as a civilian in Maine, he is subject to Maine taxation on his civilian job, even though if his wife has a civilian job she is exempt. Bizarre indeed.

Now comes the part I don't know. Is Ophelia entitled to claim Alaska as her domicile even though it has never been? Can she do so because Albert was once a resident?

If so, then she cannot be taxed by any state (unless Alaska passes an income tax). If she cannot, then she must choose to be domiciled under either Maine or Ohio.

[OtisMozzetti]

For the 2009 Military Spouse Residency Relief Act to apply, the nonmilitary spouse had to have a domicile established in the same state as the military member. This nonmilitary spouse is from Ohio and never established Alaska as a domicile. The nonmilitary spouse is stuck with Maine's usual rules since the MSRRA does not apply.

I just got through teaching a class about special rules in California for military members and their spouses.

[Snaggletooth]

Thanks

Otis thanks for the correction. I don't like to mislead people. Happy that you are on top of the subject. And the answer makes sense, too.

[Bonnie]

Differing Views from states

Well, this is situation: Couple are relatives who went to a VITA person in Maine originally who did the taxes wrong. So they then went to HR Block to get it corrected. Block did the return with all income including the military being taxed to Ohio. So now they get a big tax bill from Ohio. Asked me about preparing their taxes next year and I voluneered to help straighten out the mess. This morning I talked with a Revenue person in Maine and also Ohio. Lady in Maine said the income should be taxed to Ohio. Lady in Ohio said Ohio should not tax this income. Personally I think the lady in Ohio is correct. Key being whether they were residents of the same state, which they are not. Lady in Ohio agreed this is why the spouse income would be taxed by Maine. Lady at Revenue Cabinet in Maine told me it didn't make any difference if they were residents of the same state. I tried to explain to her that according to the law that was passed that was the key. She said no, and I didn't feel like trying to set her straight so just let it go.

[Gary2]

On reading the text of the law, I'm not surprised. It seems ambiguous, saying one thing in one place but not in another.

[JohnH]

Sounds like more of what's been coming out of Washington lately. Hastily thrown together, voting under arbitrary deadline pressures, nobody really reading it, and then finding out after it's passed what they voted for (assuming they care in the first place).

[gkaiseril]

The federal government pass a revision to the IRS code and the the states then chose to accept it or reject it.

You have 2 taxpayers that could have 2 very different state tax treatments.

The service member's tax home and his federal earnings are generally taxed based on the home of record for the enlistment or orders to active duty. The service member can take actions that could change his/her tax home. Also any non-active duty pay could be taxed as a non-resident by the state in which he/she is stationed in. Note that this residency remains no matter how long the service member is on active duty or takes other action to change his/her residency.

The spouses used to be treated a residents of the state in which they resided until the 2009 Military Spouses Residency Relief Act. At which time the spouses were allowed to choose to be treated as a resident of the state in which the military spouse claims residency or establish a different state of residency.

From, http://www.maine.gov/revenue/publica...0Vol20Iss3.htm

"MSRRA provides that a military spouse cannot lose or acquire residence or domicile in a state when the military spouse is absent from, or located in, a state solely to be with the service member who is complying with military orders. Consequently, for Maine income tax purposes, a military spouse will not be treated as a resident of Maine if the following conditions are met:

"The military spouse is located in Maine solely to be with the service member;
"The service member is located in Maine in compliance with military orders;
"The service member and the spouse were resident or domiciled in a state other than Maine immediately prior to being located in Maine; and
"he service member and the spouse have the same state of residency or domicile.

"Certain Income Not Sourced to Maine

"Maine law imposes income tax on the Maine-source income of a nonresident individual. Under provisions of SCRA, income of a military spouse for the performance of services in Maine will not be treated as Maine-source income subject to Maine income taxation if:

"The military spouse is a not a resident or domiciliary of Maine;
"The military spouse is located in Maine solely to be with the service member;
"The service member is located in Maine in compliance with military orders; and
"The service member and the spouse have the same state of residency or domicile.
"For purposes of the new law, income from the performance of services includes:

"Wages, salaries and other compensation for services performed by a military spouse as an employee, and
"Any other income received, to the extent it is for services performed directly by the military spouse (e.g. personal services provided by a sole proprietor).

"The exclusion from state taxation applies only with respect to the military spouse. Non-military income earned in Maine by a service member is Maine-source income and remains subject to Maine income tax. "

So it looks like you need to determine if the spouse has changed his/her state tax home to Alaska as of the date of marriage. Probably the best result.

The language of the State of Maine rules do not cover marriage after being stationed in Maine.

I would treat the spouse as a part year resident of Ohio up to the date of marriage, and then treat the spouse as a resident of Alaska from the date to marriage on.

Spouse files if needed Ohio as part year resident.

Couple as Maine Non-Residents MFJ, service member's active duty wages not subject to Maine tax, spouse's income not subject to Maine income tax and claim relief under the Military Spouses Residency Relief Act (MSRRA) and have the Maine state income tax withheld refunded.

Alaska has no state income tax.

Marriage can allow for a number of changes besides a name change. Look at citizenship status of spouses on a federal return.

If needed the couple should contact the Coast Guard's legal services.

Also see Military Spouse Residency Relief Act and State Taxes, http://www.military.com/finance/taxe...ate-taxes.html .

[MAJ]

Two different cases, right?

In the case above - The year they are married there will be multiple returns filed for each of their respective states they lived & worked in. She, Ohio. He, Alaska. Then she has a state return for Maine because she got a job there. After year one Ohio & Alaska should be out of the picture.

Going forward, Maine would have to be the home address. This is where mail is being received (I sent them a card the other day in fact - 8-). This is where both of their jobs exist. If he has a residence still in Alaska then he has a 2nd home. Good for him/them!

From one cold climate to another - Genius!

[joanmcq]

If he is still in the military and domiciled in Alaska, he is not treated as a resident of Maine and does not file there. If she never was domiciled in Alaska, Alaska doesn't fit into the picture for her, and she is resident of, and files in, Maine (part year Ohio, part year Maine). From the way I'm reading the law, they have to have the same domicle for the MSRRA to apply to her.

correct?

[gkaiseril]

The Coast Guard is not part of the Department of Defense or any of its branches of service. It was an organization under the Department of Transportation and is now part of the Department of Homeland Security. But it is one the 5 Uniformed Services of the United States and is afford all the rights, privileges and responsibilities of the traditional military organizations. Unfortunately the law uses the term 'military' and not 'Uniformed Services'.

If the spouse has taken action to establish residency in Alaska that would include voter registration, a permanent mailing address, bank accounts, driver license, etc, then she would be a resident of Alaska and her residing with her husband is considered a temporary absence, not matter how long that might be. And receives the treatment now allowed to a military (uniformed service) spouse. And under that law she would be a part year resident of Ohio before the marriage and an Alaska resident after the marriage. Here Maine status is as a temporary resident due to being with her active duty husband and as such is not subject to the income tax of Maine.

If the Coast Guard and its members is excluded form this protection because of the poor wording of the law, then we should work to retroactively amend the law to include all Uniformed Services. By the way the U.S. Coast Guard has served in Vietnam and in the Gulf War.