NC Military Resident?

[Burke]

TP is transferred to military base in NC from TX but does not live on base. Is he required to file as a resident of NC? Wife works at NC job.

[Possi]

Not him

No, his home state of record is TX. No state return for him.
She should do a MFS return for NC. You'll have to check and see if NC allows the spouse to claim the same home state of record. VA does in certain cases, but I don't think NC does.
I do a lot of VA/NC returns because I am pretty close to the border.

[Bonnie]

I was told last year by North Carolina that if both spouses were residents of the same state then according to the new law that went into effect last year the spouse also does not pay state tax to North Carolina and is considered a TX resident. If spouse was resident of a different state than the military taxpayer then she/he dose pay NC tax.. If spouse is a TX resident then they would file a NC non-resident return to get back what has been withheld. Also should be a form they can fill out so that NC does not withhold state tax.

[snowshine]

Bonnie is correct about spouse pay. So long as they both are TX residents she is not taxed on her NC earnings.One enters a negative amount on line 52 of the D-400 equal to the wages. These returns cannot be e-filed and a copy of the husband's military orders needs to be attached. Include a note mentioning, "The Military Spouses Residency Relief
Act of 2009." Good luck!

[Burke]

Ok. I downloaded the pertinent rule from NCDOR. Where I have some gray area in all this is the term......"income earned for services performed in NC by the spouse of a servicemember who is legally domiciled in a state other than NC, is exempt....." So what determines "legally domicilied?" Do they have to maintain a home in TX? Vote in TX? Have cars registered in TX? Etc, etc. Or can they just "declare" TX as home? He had a house there while stationed there, but sold it in 2009. Was later transferred to NC. What happens if they buy a house in NC?

[Burke]

I was told last year by North Carolina that if both spouses were residents of the same state then according to the new law that went into effect last year the spouse also does not pay state tax to North Carolina and is considered a TX resident. If spouse was resident of a different state than the military taxpayer then she/he dose pay NC tax.. If spouse is a TX resident then they would file a NC non-resident return to get back what has been withheld. Also should be a form they can fill out so that NC does not withhold state tax.

Yes, apparently that is correct. All this is controlled by the Military Spouses Residency Relief Act of 2009 signed into law on 11/11/09, so I am thinking it applies nationwide in all states. So, the only thing we have to determine is what is the requirement to be considered a resident of another state. VA spells this out more completely. It's Tax Bulletin 10-1 states "In order to claim a domicile in another state, the spouse must have (1) resided in the other state with the intent to make a permanent home there, and (ii) not abandoned that domicile when moving to reside with the service member or for any other reason." So how do they prove this since they do not file tax returns in Texas nor do they maintain a physical residence there?

[erchess]

My Impressions

I believe that every person in the US Military has for a long time been considered a resident of the state in which they resided before entering service and was exempt from the taxes of the state and locale of the duty station UNLESS they CHOSE otherwise which they were free to do. For example someone from California would be quite likely to be stationed somewhere with a lower tax burden so they might CHOOSE that state and they would be free to keep it when transferred to another duty station.

I believe that what is new is that spouses can now have the same tax home chosen by the service member.

[Burke]

I believe that every person in the US Military has for a long time been considered a resident of the state in which they resided before entering service and was exempt from the taxes of the state and locale of the duty station UNLESS they CHOSE otherwise which they were free to do. For example someone from California would be quite likely to be stationed somewhere with a lower tax burden so they might CHOOSE that state and they would be free to keep it when transferred to another duty station.

I believe this is the case also.

I believe that what is new is that spouses can now have the same tax home chosen by the service member.

Not exactly.
According to the same VA tax bulletin mentioned above, it states "...The spouse cannot simply elect to claim the service member's domicile." See my quote from that bulletin in previous post in which she had to be an actual resident of that state. "This is based on the actual wording of the SCRA, as amended, and the Committee Report and statements made on the floor of Congress during consideration of the bill." So that works if she was an actual resident of the serviceperson's legal state of residence which was TX. Not if she came from somewhere else, like NC, IMO.

[erchess]

Thank you

Burke for the clarification.

[Bonnie]

Military service member remains a resident of state they were resident of prior to entering military unless somewhere along the way they change their state of residence. If they should do this it is all handled by the military and paperwork filled out at their finance office. Therefore, whatever is listed on their W-2 is the state they are considered a resident of regardless of where they live. You then gotta determine which state the spouse was a resident of either at the time they married if he/she was already in the military when they married. Otherwise if they were married prior to him/her entering the military then obviously they were residents of the same state. Key to knowing if spouse's income is taxed by state they are living in or her state of residence prior to military service is whether spouse was resident of same state as military member or different state. If I understand it right, spouse must still pay tax to her original state of residence.

[DixieEA]

spouse wants to be resident of NC

Bonnie, in my situation husband is military from Miss., they married in Miss and still
maintain home in Miss. The wife is going to college in NC and working but wants to to NC
resident to get in state tuition. I understand the wife should also be a Miss resident
under the 2009 law, but is it mandatory or is the choice made by the taxpayer?

Thanks, DixieEA

[FEDUKE404]

Better explanation for NC?

I agree that a member of the military has his/her military wages taxed by the state of record, and not the state in which the military base exists.

Where things get a bit blurred is if Sgt Jones gets a part-time job at a fast food joint. Which state(s) tax that?

Similar question for the wife (civilian) of Sgt Jones who lives with her husband on base and maintains a full-time job at a local department store. Which state(s) tax that?

It is my understanding that the rules for such non-millitary income may differ between states - what does NC do?

(Obviously the "home-of-record state" of most military members will generally try to tax everything for their legal residents, regardless of where they might be.)

FE

[FEDUKE404]

Will likely lose on college breaks

Bonnie, in my situation husband is military from Miss., they married in Miss and still maintain home in Miss. The wife is going to college in NC and working but wants to to NCresident to get in state tuition. I understand the wife should also be a Miss resident under the 2009 law, but is it mandatory or is the choice made by the taxpayer?

Thanks, DixieEA

This is an entirely different (non-tax) scenario.

NC is quite restrictive as to who is allowed to be treated as a "resident" to obtain reduced fees at state-supported colleges. Many questions are asked, specifically related to residency (think driver's license, property taxes, voter registration, etc) at the time of applying to the college.

My guess is someone serving in the military in NC but with a home-of-record in MS will have virtually no chance of qualifying as a "resident" for tuition reduction purposes.

Of course, stranger things have happened......

FE

[Gary2]

These returns cannot be e-filed and a copy of the husband's military orders needs to be attached. Include a note mentioning, "The Military Spouses Residency Relief Act of 2009."

I wonder what the documentation requirements are for other states. MA wants copies of the orders, the State of Legal Residence Certificate (DoD Form 2058), the Leave and Earnings Statement, and the military spouse ID card, and like NC, it must be mailed in. It's a nuisance for the taxpayer. MA also has a special withholding form for this purpose; the standard M-4 (analgous to IRS W-4) can't be used. I wonder how many employers or small payroll processors will be familiar with it.

Are there any other states with similarly onerous documentation requirements? Any states that make it easy? You'd think that MFJ + appropriate DFAS W-2 would be enough for the first pass, with random audit letters to check compliance.

[Gary2]

I agree that a member of the military has his/her military wages taxed by the state of record, and not the state in which the military base exists.

Where things get a bit blurred is if Sgt Jones gets a part-time job at a fast food joint. Which state(s) tax that?

Similar question for the wife (civilian) of Sgt Jones who lives with her husband on base and maintains a full-time job at a local department store. Which state(s) tax that?

It is my understanding that the rules for such non-millitary income may differ between states - what does NC do?

Prior to the MSRRA, there was an asymmetry. The military income was only taxed by the state of record, but all other income was taxable both by the state of source and state of record. I don't know of any states that allow a military member with side jobs in that state to exclude the side income along with the military income.

With the MSRRA, there's a different asymmetry. For the military member, it's the same as before -- military income is only taxed by the state of record, but any other income (side jobs, etc.) is still eligible to be taxed by both. However, for the spouse, all earned income is only taxable by the state of record (assuming the other requirements about same domicile as spouse match up). So if both spouses take part-time jobs at a fast-food restaurant, the military member's income would be subject to the local state's tax but the spouse's wouldn't be.

Where the states may differ is on how they interpret earned income. Real estate rentals, for example, are unlikely to be excluded by any state. But if the spouse is self-employed, it's trickier. With no employees or partners, and no significant capital, my hope is that all states would consider that excluded by the MSRRA. But if the spouse has a sole proprietorship with employees, it gets hairy, as would a partnership or multi-owner LLC or S-Corp. Even a SMLLC or single owner S-Corp might raise issues.

The legal issues are even more complicated because the MSRRA doesn't actually say "earned income." It says "income for services performed." The MA discussion (MA TIR 09-23) suggests that a capital-intensive sole-proprietorship might be subject to scrutiny. What comes to mind is a schedule C business based on leasing personal property with minimal labor involved.