Military Spouses Given Residency Rights Under New Law

An amendment to a military act gives spouses of military personnel new residency rights, creating income and estate tax planning opportunities for military families.

Because military families move, on average, every three years, the families often have to pay taxes in a new state or locality and lose the right to vote in the place considered to be home. The Servicemembers Civil Relief Act (SCRA) allowed a U.S. service member to keep his or her original state of residency. However, service members’ spouses have not been accorded the same benefit. Now, under the Military Spouses Residency Relief Act (MSRRA), Public Law 111-97, signed into law on November 11, 2009, the SCRA was amended to allow a spouse to remain a legal resident of his or her home state.

The MSRRA also provides income and estate tax benefits to service member families. For example, a military family will have more flexibility to lower their income tax bill by claiming a state with no state income tax as their state of residency, as well as avoid the necessity of filing separate income tax returns.

In addition, a family may be able to gain estate planning and tax benefits by choosing residency in a non-estate or inheritance tax state, or selecting a state with an exemption amount close to the prevailing federal exemption amount. Certain estate planning provisions, such as no contest clauses or loss of inheritance provisions, may be possible in some states and not others. And a spouse’s choice of residence may allow him or her to avoid such things as “community property” laws, longer-term child support payments, and alimony.

However, the MSRRA does not address a driver’s licenses or vehicle registration. That continues to be done on a state-by-state basis.

In New Jersey, the MSRRA provides that a spouse of a servicemember may be exempt from New Jersey Gross Income Tax on income from services performed in New Jersey if: (i) the servicemember is present in New Jersey in compliance with military orders; (ii) the spouse is in New Jersey solely to be with the servicemember; and (iii) the spouse maintains domicile in another state.

Qualifying servicemember’s spouses who are not domiciled in New Jersey may request a refund of taxes withheld or paid for the 2009 tax year by filing the New Jersey Nonresident Income Tax Return (NJ-1040NR) with an attached explanation referencing this federal law. Refunds for taxable year 2009 may be claimed on and after January 1, 2010.

Spouses whose wages are exempt from New Jersey Gross Income Tax under the Military Spouses Residency Relief Act may claim an exemption from New Jersey Income Tax withholding on a forthcoming revised Form NJ-165 to be filed with their employers.

The new law also applies to a partner in a Civil Union (or spouse in an out-of-state same sex marriage).

The full text of the MSRRA is annexed here: Military Spouses Residency Relief Act. The MSRRA also has a Facebook page.

Source: ElderLawAnswers