I’m in the military. Do I need to file a state return?

Tax Tips

This question is popping up in Live Community from our military TurboTax customers. For 20 years I was a Navy wife, so I volunteered to try to answer the question.

To figure out which state return an active duty military person files depends (in military terms) on their “home of record” or “state of legal residence.”

First let’s define those two terms.

Your “home of record” is the state recorded by the military that was your home when you were enlisted, appointed, commissioned, inducted or ordered in a tour of active duty.

Your “state of legal residence (SLR)” is your “home of record” unless you changed it to another state.  Military members often mistakenly think that by changing the state on their paycheck records changes their SLR.  Nope. In order to change the SLR, a DD Form 2058 must be submitted to the finance officer and accepted.

For more information on requirements for valid changes when filing Form 2058, check out a Fact Sheet on Legal Residence that I discovered on Hill Air Force Base’s website.

From a tax standpoint, your SLR is considered your “domicile” or “resident” state as long as you are on active duty.  Even if you are stationed in another state, you’re still considered a resident of your SLR.

Now that we’ve defined these terms, let’s look at an example..

Joe lived in San Diego, CA back in 2000 and decided to join the military.  It’s now 2008 and he is stationed in Maryland.  He and his wife Jennifer are living in Virginia.

Does Joe file a state tax return for 2008?  If so, which state?  California, Maryland and/or Virginia?

We know that Joe is considered a California resident (That’s “his home of record” and SLR.)   It depends on each state’s laws if they want their resident military to file a return when they are stationed outside the state.   Let’s see what California law says.

It says that if Joe is active duty military, home of record is California, and stationed in California, then he files a typical California resident tax return.  If he’s stationed outside of California, he is considered a “nonresident” CA for tax purposes. In most cases, he doesn’t need to file a CA return unless he has CA source income such as rental property income. In these circumstances,  CA source income doesn’t include his military W-2 or intangible income like interest, dividends, stock sales etc. So it looks like Joe doesn’t have to file a California return.

Remember that each state is different. If Joe’s “home of record” was in a certain state, he may be required to file a return and then deduct all of his income and pay no tax.  That way the state knows he still exists!  And some “home of record” states will tax Joe on his income even if he is stationed outside of the “home of record.”  To check out your “state of legal residence” laws for filing when stationed outside the state, click on IRS’ State Links website to find your SLR’s state website.

Does Virginia or Maryland expect a tax return from Joe?

The Servicemember Civil Relief Act states that an active duty member is not considered a resident of a state unless it is his SLR. Joe would only file a Virginia or a Maryland return if he had a nonmilitary 2nd job in that state. If he’s working at Home Depot in Virginia on the weekends, he would file as a Virginia nonresident and only report that W-2.  He would not report any other type of income.

Answer for Joe: He doesn’t have a rental property back in California and doesn’t work a second job so there are no state returns to file for Joe.

What state return does his wife file?

Joe’s home of record usually has nothing to do with his wife’s residency.  Like the rest of the nonmilitary world, her residency will probably depend on which state she lives in and its law.

Let’s say that Joe’s wife is employed in Virginia and lived there all year.  She is considered a Virginia resident who has to file a resident Virginia tax return.

What type of return does she file?  Again each state is different.  The state of Virginia says she files a married filing separate resident state return and includes only her income.

If they were living in a different state, she might be required to file a nonresident return with Joe. On the return all of Joe’s income would be deducted and only Jennifer’s income taxed. Again, here’s the IRS’ State Links website to check your state on what type of return needs to be filed by a nonmilitary spouse.

For tax year 2008, Joe and Jennifer will file a married filing joint federal return and Jennifer will file a resident Virginia return.

For more information on the military and taxes, read:

Can I Efile with a Foreign Address?

Tax Information for Members of the U.S. Armed Forces

IRS – Armed Forces Tax Guide

Comments (0) Leave your comment

  1. In reference to “Joe’s wife”, this article needs to be updated to reflect the Military Spouses Residency Relief Act. Under the provision for tax residency, Joe’s wife does not lose or gain a residence or domicile because they moved to be with an active duty spouse. However, both spouses must have the same state of residence.

  2. Hello to David, Yes I can understand your frustration however I’m hoping you haven’t torn up the paper yet. You need to send an “official” copy of your Home of Record as Michigan as a response to CA FTB’s letter. CA FTB tends to be aggressive and won’t just go away. Also if you’ve filed returns with Michigan, send CA FTB copies of those returns. Hope this info is helpful…

  3. So angry. I am active duty USN, Home of Record: Michigan. CA mailed me a notice of proposed assessment for 2006 (received in April 2009 via a friend).
    I’ve since moved to VA as of April ’07.
    I have filed federal returns annually, was briefly married ’06, divorced ’07, filing jointly, wife with no income.
    I’m tearing the damn thing up!

  4. Hi karlan, Good question. And the answer is you have to do another federal return with just the wife’s info in order to generate the return that VA wants. We used to live in VA (i’m an old military wife) and I prepared returns there. Drove me crazy with every military return..

  5. Okay…so the next questions to the example: If the couple use turbotax to complete their Married Filing Jointly Federal taxes, is their a way to complete the VA state tax form without having to create a bogus Federal form to establish the non-active duty spouses Federal tax basis? Is turbo tax sophisticated enough to queue off the W-2 and/or 1099 for the wife to do her VA taxes?

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