Colorado state Return

[Bonnie]

Been trying to reach Colorado for days and cannot get through to them.
Doing a return for taxpayer in military with home of record Colorado. Spouse worked in Kentucky and has W-2 here but Colorado includes her income on their state return. I know all states are different in treatment of such situations. Does anyone know if her income earned in Kentucky can be subtracted on the Colorado return. I do see where there is a credit for taxes paid to another state, but it was only 3000 and she had no tax liability to Kentucky so no credit. It does affect the tax liability to Colorado.

[FEDUKE404]

Mililtary Spouses Relief Act likely governs

In the situation you cited, most states now do NOT tax any income earned by a service member and his/her spouse while present due to active military duty within their "foreign" state.

The home state ("home of record" or "legal domicile") normally will tax ALL income earned by military members on active duty, whether they are stationed in the "home" state, another state, or even another country.

In your situation (without doing the research....) the most likely scenario is that CO will tax all income of the military person and the spouse. There should be no income tax liability to KY for either person.

If there was any KY state tax withholding, then you may need to file (non-resident return) just to get that money back. FWIW: Many employers now have the options of having their employees certify they are in the area as a result of military orders, and then are excluded from having any state withholding on their wages. That simplifies things greatly...

Each state is different.....

You may wish to read this article: Mil Spouse

I also found this, without too much trouble, on the CO web site: CO LINK

FWIW: Generally speaking, unless you enjoy elevator music and have a LOT of time to waste, calling any state tax agency at this time of year for "general questions" can be very counterproductive, to say the least. A suitable alternative is to look through their web site, or in many cases send an email with your SPECIFIC question, and then move on to something else while you wait for a response.

FE

[Gary2]

The home state ("home of record" or "legal domicile") normally will tax ALL income earned by military members on active duty, whether they are stationed in the "home" state, another state, or even another country.

A few states, including, I believe, the notoriously greedy NY, will not tax the income earned by military members on active duty who have that state listed as their home state if the military member spent minimal time in the state (often less than 30 days) and did not maintain an abode in the state.

This can be a surprising benefit. Corporal C has a home state of XX, but neither owns a home nor keeps an apartment there, and is stationed for the entire year in YY. YY isn't allowed to tax his military pay, and XX chooses not to tax it for whatever reason.

[FEDUKE404]

More confusion

A few states, including, I believe, the notoriously greedy NY, will not tax the income earned by military members on active duty who have that state listed as their home state if the military member spent minimal time in the state (often less than 30 days) and did not maintain an abode in the state.

This can be a surprising benefit. Corporal C has a home state of XX, but neither owns a home nor keeps an apartment there, and is stationed for the entire year in YY. YY isn't allowed to tax his military pay, and XX chooses not to tax it for whatever reason.

You are correct that a few (I don't know specifics) are choosing not to tax military pay of their "own" (home of record) citizens. Whether this trend will spread will depend upon the financial needs of the states versus the "we owe them something" attitude towards members of the military.

I guess you could make an argument as to "fairness" for two soldiers stationed at Ft Bragg, making the same pay, and living on post. The "NC" origin soldier would owe NC taxes on the income and the "PA" origin soldier would not owe NC taxes on the income.

As for the NY approach you mentioned, I would think that would be a massive can of administrative worms to manage (TDY, deployment, etc.). And is there a difference between an "abode" on base in military housing versus an "abode" off-base where a house is rented so that the soldier and his spouse/children can live there??

I do remember from years ago when I was in the Army and stationed in AL, NM, and Germany. Paid NC income tax on every penny. And current "offspring" is with the military in CA (renting a house off-base), and perental unit just finished IRS/NC tax returns with every penny also taxed.

Think I'll call it a day...

FE

[Bonnie]

I'm familiar with lots of states as I am near Ft Knox and have done many returns for military. They are all different in their treatment of the military pay. Lots never tax it, some if not stationed in their home state. Some will let spouses file separately and only include their portion of income on that state which is what would benefit this couple. From what I can find on Colorado looks like they include all income of both spouses. I've also found that a lot of the military end up somehow being residents of Texas or Tenn or Florida. Guess those are the ones whose home state do tax the military income. I think when they get stationed there, they change their state of residence. Not sure how all that works but the ones whose home state does not tax military pay have no reason to change HOR. Kentucky just quit taxing military income a few years ago. Personally I think all states should do the same.

[Burke]

The OP was concerning the military spouse's earned income (W2) in the state of KY. This would be covered under the Military Spouses Residency Relief Act, but that applies to the state in which the income is earned, and would be valid if the military spouse met the rules.

For instance, if the service member was originally a CO resident and then was transferred and stationed in KY before he married, and then married a KY resident, MSRRA would not apply to the spouse. If the spouse merely came with her husband from CO because of his transfer, and she was originally a CO resident and declared this to her KY employer, then her income would be taxed in CO and not in KY. (If the military member got an outside job (W2) in KY, he would be subject to KY income tax.) This is a federal law, so all states have to conform to it.

Most states either allow a tax credit or a deduction of income earned in another state; they do not allow both. CO allows a credit; but in this case she may not be eligible for it if CO is still her declared state of residence. In that case, she would file a resident CO tax return, and a non-resident in KY only to get a refund of withheld state income tax.

[Gary2]

Most states either allow a tax credit or a deduction of income earned in another state; they do not allow both. CO allows a credit; but in this case she may not be eligible for it if CO is still her declared state of residence. In that case, she would file a resident CO tax return, and a non-resident in KY only to get a refund of withheld state income tax.

I'd phrase it differently, by saying she'd be eligible, but the amount would be zero - since that's the amount of KY tax liability. If, for example, she had gambling or other types of income taxed by KY, she'd be able to claim the credit against that.