Welcome to Tax Week, a weeklong series of guides and resources for the 2025 tax season.
For civilians, state taxes are easy. In most cases, civilians are residents of the state where they physically live, and they file their state income taxes there. (Or not, if the state has no filing requirement.)
But the Servicemembers Civil Relief Act (SCRA) grants special protections to military service members and their spouses so that they don't have to change their state of legal residence with every permanent change-of-station (PCS) move. While this can be a big benefit, it also creates confusion about where service members and military spouses can file their taxes. Plus, the federal law has changed several times in the past 15 years, and not every person or every state has caught up to the changes.
A Little History
Military service members have had state tax protections for many years. From its inception, the SCRA stated:
"A servicemember shall neither lose nor acquire a residence or domicile for purposes of taxation with respect to the person, personal property, or income of the servicemember by reason of being absent or present in any tax jurisdiction of the United States solely in compliance with military orders."
In plain language, that means military members don't have to change their state of legal residence if they move on PCS orders. This has been the law for decades, and everyone seemed to understand how it worked.
However, military spouses did not have the same protections. They had to change their state of legal residence with every PCS move and pay income taxes to the state where they were now residents. As more military spouses entered the workforce, this became complicated and burdensome.
So in 2009, Congress passed the Military Spouses Residency Relief Act. It's important to understand that the MSRRA was not freestanding legislation; all it did was make changes to the SCRA to extend some protections to spouses. Under the newly revised SCRA, some military spouses could maintain the same state of legal residence as their service member. It was a good start but left a lot of issues unresolved. Many military spouses weren't residents of the same state as their service member, and there was no provision to establish residency in a state where you weren't living. (There still isn't, but that's not the point here.)
Two further revisions to the SCRA addressed state taxes for military spouses. The Veterans Benefits and Transition Act of 2018 made it possible for military spouses to "borrow" their service member's state of legal residence for purposes of taxation without being a legal resident of that state. Then the Veterans Auto and Education Improvement Act of 2022 made sweeping changes to this section of the SCRA, giving both service members and spouses unprecedented flexibility in choosing what state to use for purposes of state taxation.
As a side note, many states still call the law MSRRA, even though that legislation has now been superseded twice and was never legislation that stood alone anyway; it just amended the SCRA. But knowing that some people and organizations still call it MSRRA is helpful.
So What Are the Rules Today?
Effective in January 2023, the SCRA says service members and military spouses can file their state taxes in any one of the following:
- The service member's state of legal residence,
- The military spouse's state of legal residence, or
- The state where they live under PCS orders.
The federal law doesn't even say that they have to choose the same state, though in most cases, that makes the most sense. For example, if one spouse is a legal resident of Florida, which has no state income tax, it probably makes the most sense for both spouses to claim Florida and take advantage of the lack of a tax.
However, in some situations, this might not be true. Let's say one spouse is a legal resident of a state with a great public university system that will grant in-state tuition based on legal residency, and the family has three kids in high school. Perhaps it makes more sense for that spouse to continue to pay state taxes to that state in order to preserve in-state tuition rates for their kids.
This Doesn't Apply to All Income
Jerry Zeigler, an enrolled agent who can represent taxpayers to the IRS, is president of the Military Tax Experts Alliance. He explained a lot of the details of the SCRA to me. First, Zeigler said "not all income is protected" under the SCRA. "The most common income that might be sourced to a non-resident state are rental income and certain business income."
If you own a rental property, you need to report that income to the state where the property is located. Zeigler gave me an example: "If you are a Texas resident but you have rental property in California, then income from that California rental is sourced to California. SCRA does not change this. If income is sourced to a non-resident state, there is often a filing requirement for that state. And there may also be a good reason to file a tax return in that non-resident state even if not required."
What "certain business income" means can vary based on a state's interpretation of the SCRA and possibly whether the state is more generous than the SCRA requires. If you own a small business, you probably want to use a tax professional who understands the SCRA and how different states are implementing it.
What About Earned Income?
In a weird quirk of the law, service members can use SCRA protections only for their military pay. Spouses, however, can use it for all earned income. So, for example, let's say Susie Service Member and her wife, Wilma, both work at their local Renaissance fair on Saturdays one fall. Income in Susie's name would have to be attributed to the state where the Renaissance fair is located. Wilma's income could be protected under the SCRA, with the option of attributing that income to either of their states of legal residence.
Because not all income is protected under the SCRA, you may find that you need to file state income taxes in multiple states. Despite being a Florida resident, I had to file in both Virginia and Maryland for many years.
Federal Law vs. State Law
While federal law trumps state law, there is always room for interpretation at the state level. Zeigler pointed out that "the latest change for SCRA still does not seem to be fully covered by all the states with an income tax. They haven't all updated instructions, forms and their tax codes. They typically don't have the exact same interpretation. This may cause complications for some military spouse filing situations, especially if a position is taken based on your interpretation and it subsequently turns out that the state interpretation is different."
For example, I've been told that North Carolina interprets the federal law to mean the service member and the spouse must use the same state for tax filing. And until someone challenges that, they'll probably continue to have that opinion.
When Does SCRA Not Apply?
Sometimes, military spouses live somewhere different from where their service member is stationed. Perhaps the family has decided to "geo-bach," so the spouse isn't in their location due to military orders. In this situation, the spouse would not be protected by the SCRA and would need to follow the usual residency and tax rules of that state.
So What State Do I File in?
The short answer is that service members and spouses can file in three states: the service member's state of legal residence, the spouse's state of legal residence or the state where they live on PCS orders. However, income beyond military income and the spouse's W-2 income may require additional considerations. A tax professional may make sense, because you can't possibly know every nuance of every state's interpretations.
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