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.
In 2000 Joe lived in South Carolina and decided to join the military. It’s now 2009 and he’s stationed in Maryland and he’s living in Virginia. Does Joe file a state tax return for 2009? If so, does he file a South Carolina and a Virginia and/or Maryland return?
We know that Joe is considered a South Carolina 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 South Carolina law says.
It says that if Joe is active duty military, home of record is South Carolina and whether he is stationed in South Carolina or another state, he files a South Carolina resident income tax return each year.
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 little or no tax. That way the state knows he still exists! And some “home of record” states like South Carolina will tax Joe on his income even if he is stationed outside of the “home of record.” When California is a “home of record” and the active military is stationed outside of California, he/she is considered a nonresident of California. 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 him?
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.
What state return does his wife file?
If Joe is married and his wife works in a civilian job in Virginia she might have to file a state tax return in Virginia. However, if she qualifies under the 2009 Military Spouses Residency Relief Act, she might be able to claim South Carolina as her state of legal residence, along with her husband.