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Military Spouses Residency Relief Act:  Frequently Asked Questions

 

 Who Qualifies for Relief

I am the spouse of a military service member, living in Virginia. Am I exempt from filing Virginia income tax returns under the Military Spouses Residency Relief Act?

Yes, provided you are present in Virginia solely to be with your service member spouse who is permanently stationed here in compliance with military orders, you and your spouse have the same domicile or legal state of residence, and the income you received in Virginia is from wages or salaries earned as an employee, or is derived from certain limited self-employment, as discussed below. You must meet all of these criteria to qualify for relief.

I moved to Virginia to be with my service member spouse, but we are now legally separated.  Do I still qualify for relief under the Military Spouses Residency Relief Act?

Your income will cease to be exempt from Virginia income tax no later than the entry of a divorce decree. However, as explained in Tax Bulletin 10-1, your exemption may end if you voluntarily maintain a separate residence from your spouse since the Act specifically applies to spouses who are in the state solely to be with the service member.

I am a lifelong resident of Virginia. I met and married my service member spouse here. My spouse has been stationed in Virginia for a number of years, and claims Pennsylvania as her legal state of residence. Am I eligible for relief under the Military Spouses Residency Relief Act?

No. In order to qualify for relief, you must share the same legal domicile as your spouse. Unless you are able to establish residency in Pennsylvania, the relief provisions will not apply to you.
 

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 What Income Qualifies for Exemption

Do all types of income qualify for exemption from Virginia income tax if I qualify for relief under the Military Spouses Residency Relief Act?

No. A spouse who qualifies for relief is exempt from Virginia income tax on income for services performed by the spouse, such as wages received as an employee. Other income from Virginia sources, such as rental income from property located in Virginia, generally wil be taxable. A spouse’s income from self-employment may or may not qualify for the exemption, depending on the type of business in which the spouse is engaged.

What type of self-employment income qualifies for exemption from Virginia income tax under the Military Spouses Residency Relief Act?

Income you earn from self-employment is exempt from Virginia income tax if the primary source of income from your business is derived from your performance of a service, and you meet the conditions for exemption discussed under Who Qualifies for Relief. If your business employs others and/or utilizes significant capital (equipment, vehicles, etc.), then the income you derive from the business will not be exempt from Virginia income tax. For additional information, see Tax Bulletin 10-1.

Does income earned in taxable years before 2009 qualify for exemption?

The federal law generally applies only to taxable years beginning on or after January 1, 2009. For taxpayers reporting under a fiscal year, the exemption first applies in a taxable year that includes November 11, 2009.
 

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 Taxation by State of Legal Residence

My service member spouse is a Virginia resident stationed in another state. I live with him there, and I am employed in that state. I understand that if I change my state of legal residence to Virginia, the other state cannot tax my wages. Since I don’t actually live in Virginia, will my income also be exempt from Virginia income tax?

No. Assuming you are eligible to declare legal residency in Virginia and you choose to do so, you will then become subject to the provisions of Virginia tax law. As a Virginia resident, you will be subject to tax on your income from all sources, including income earned in another state.

Both my service member spouse and I are legal residents of another state that does not have a state income tax. Is my income exempt from Virginia income tax under the Military Spouses Residency Relief Act even though it will not be taxed in another state?

As long as you meet the criteria discussed under Who Qualifies for Relief, your income will be exempt from Virginia income tax. The fact that the income will not be subject to tax in another state has no bearing on the exemption.

If I meet the qualifications for exemption from Virginia income tax as a non-military spouse, but my spouse and I are legal residents of a state that imposes an income tax, do I have to pay tax to that state?

Each state has its own laws regarding the imposition of income tax. You should contact your legal state of residence to determine its filing requirements.

My service member spouse and I are living in another state pursuant to military orders, and we claim Virginia as our state of legal residence. Do I have to pay Virginia tax on my income?

Yes. As a legal resident of Virginia, you are subject to Virginia income tax on your income from all sources. For details on filing requirements for residents, refer to the instructions for Form 760, Virginia Resident Income Tax Return.

I am a military spouse who is a resident of Virginia. I have been living with my husband in a different state and paying taxes to that state for my income earned there. Can I now file a joint resident return with my spouse in Virginia?

Yes, provided you and your husband were residents of Virginia before moving to the other state and have not taken any action to abandon Virginia as your legal state of residence. You should be aware of the fact that when you stop filing in the state where you are living, its tax authorities may question whether your domicile, or legal residence, is Virginia.
 

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Residency Determinations and Requirements

The federal law requires both spouses to claim the same state of legal residency. May I automatically claim the same state of residence as my service member spouse?

No, you may not simply elect to claim your spouse’s state of residence. In order to claim a domicile in another state, you must have resided there with the intent to make that state your permanent home, and not abandoned that domicile when moving to reside with the service member or for any other reason.

How can I prove domicile in another state?

Because a determination of domicile requires an analysis of the unique facts and circumstances of each individual case, there is no one specific action, fact, or document that will automatically prove or disprove domicile without consideration of all relevant information. Among the elements that TAX generally considers in examining domicile for a spouse are: whether the spouse is married to a service member who is in Virginia pursuant to military orders; the service member’s domicile; and the spouse’s domicile, as well as the circumstances under which it was established. We also consider the extent to which the spouse has maintained contacts with the claimed domicile, and whether the spouse has taken any action in Virginia that is inconsistent with maintaining a domicile elsewhere. With respect to documents that may assist in determining domicile, see Filing Refund Claims, below.

My service member spouse claims legal residency in a state that does not impose an income tax. How can I establish residency in that state?

In addition to the general rules for establishing domicile discussed in Tax Bulletin 10-1, each state has its own laws providing for residency requirements. You should contact that state for assistance.

My service member spouse’s duty station is located in Virginia. We live in Maryland. We both claim Florida as our state of legal residence. I commute to a job in Virginia each day. Does the exemption provided under the Military Spouses Residency Relief Act apply to the wages I earn in Virginia?

The federal law refers to the service member complying with military orders, but it does not require the service member and spouse to live in the same state as the permanent duty station. Therefore, the exemption will apply to the wages you earn in Virginia.

My service member spouse’s duty station is in Maryland. We live in Virginia, and I work here. We both claim Texas as our state of legal residence. Are my wages exempt from Virginia tax under the new federal law? In other words, do we have live in the state of the permanent duty station in order for the exemption to apply?

The federal law refers to the service member complying with military orders, but it does not require the service member and spouse to live in the same state as the permanent duty station. Therefore, the exemption will apply to the wages you earn in Virginia.

Is there a statute of limitations for claiming your legal domicile? For instance, if a non-military spouse has lived in Virginia for 10 years but was originally a resident of Ohio, could she claim Ohio as the state of legal domicile?

Domicile is not an election made for tax purposes. It is a status that can affect many state obligations and benefits such as eligibility to vote and tuition at state universities. While those who are domiciled in Virginia are subject to Virginia income tax, Virginia also imposes its income tax on anyone who is physically present in the state for 183 days or more during the year regardless of domicile. With respect to the specific scenario presented, the impact of the federal law is that, effective for taxable year 2009, the Department of Taxation can no longer use simple presence in Virginia for a period of more than 183 days as grounds for taxing a non-military spouse as an actual resident. Instead, we must conduct a domicile analysis to determine whether the spouse may properly claim domicile in another state. In this instance, the spouse could possibly claim domicile in Ohio. It would depend on whether she kept her Ohio domicile and did not do anything inconsistent with demonstrating intent to maintain that domicile. Although there is not literally statute of limitations in play, the length of residence in Virginia would be a factor to consider in making a determination of domicile. After 10 years in Virginia, it is probable that her legal ties here are far stronger than her ties to Ohio, and that her domicile is now Virginia. If so, then she cannot simply elect Ohio as her domicile. She would have to move back there and reestablish an Ohio domicile.

A husband and wife were both active duty military when ordered to Virginia two years ago. Their legal domicile was Florida. The husband retired from the military last year and now wants to claim Florida as his legal domicile since he is here with his still active-duty wife. This would prevent the taxation of his military pension. Can he make this election?

This scenario would be treated in the same manner as the Ohio scenario discussed above. With respect to the time factor, it is more likely in this case that the non-military spouse would have maintained sufficient ties to claim a Florida domicile.

In the past, DMV required spouses to get a Virginia driver’s license. How can this be used in determining residency on the new 763-S form? It may not be possible now to go back to the state of legal domicile to get a new driver’s license.

A driver’s license is one of many things looked at in determining residency, but it cannot be determinative in and of itself. While Virginia law allows service members, their spouses and dependents to keep their licenses from other states while driving in Virginia, some other states will not renew a license if the individual is not actually residing there. This would force them to get a Virginia license. In summary, the driver’s license cannot be the only factor considered with respect to legal domicile.
 

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Permanent and Temporary Duty Stations

My service member spouse and I are legal residents of another state, currently living in Virginia pursuant to military orders. My spouse has received orders transferring him to a permanent duty station overseas, and I cannot accompany him. Since I originally moved to Virginia solely to be with my spouse, will my income still be exempt from Virginia income tax if I stay here during his period of overseas service?

No. Once a service member receives permanent orders that require him/her to reside outside of Virginia, the non-military spouse no longer qualifies for the exemption provisions of the federal law. This is true whether or not the military would permit you to accompany the service member. Your income will cease to be exempt from Virginia income tax if you continue to reside in Virginia when your spouse goes to his/her new duty station.

My service member spouse and I are legal residents of another state, currently living in Virginia pursuant to military orders. My spouse has received orders to a combat zone overseas for a period of at least one year. Since I originally moved to Virginia solely to be with my spouse, will my income still be exempt from Virginia income tax if I stay here during her period of overseas service?

Yes. An assignment to a combat zone is generally a temporary change of duty station; therefore, unless otherwise specified in the orders, your spouse would still be permanently stationed in Virginia. Under those conditions, your Virginia income tax exemption will still be valid.
 

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 Filing Refund Claims

I qualify for exemption from Virginia income tax under the Military Spouses Residency Relief Act. How do I request a refund of the taxes my employer withheld from my wages?

Use Form 763-S to request a refund. Be sure to complete the questionnaire on the back of the form, and attach the documents requested, including your W-2(s).

What type of documentation do I need to file with Form 763-S?

You must attach copies of your W-2 forms to document the Virginia income tax withheld. If your state of legal residence imposes an income tax, you must also attach a complete copy of the return you filed with that state. Your refund cannot be issued unless all required items are attached. We also suggest that you attach a copy of your military dependent ID card and proof of your spouse’s state of legal residence, such as a copy of a Leave and Earnings Statement (LES), current driver’s license from the state of residence, or DD Form 2058 (State of Legal Residence Certificate). These documents will allow us to quickly resolve any questions that may arise about your residency status during the processing of your claim.

What if my state of residence imposes an income tax but I don’t have a copy of a tax return from that state?

If you have misplaced your copy of the return you filed with your state of residence, you will need to contact that state for a copy of the return or a transcript of your account. The Department of Taxation will not generally accept other documents in cases where an individual claims that a return was filed with another state.

What if my state of residence does not impose an income tax, or my state of residence has an income tax but does not require me to file?

In lieu of a tax return from your legal state of residence, we suggest that you provide proof of your spouse’s state of legal residence, such as a copy of a Leave and Earnings Statement (LES), current driver’s license from the state of residence, or DD Form 2058 (State of Legal Residence Certificate). In addition, you will need to provide at least two of the following documents: (1) Marriage license; (2) Vehicle registration; (3) Property tax record or bill; (4) Real estate agreements (such as lease, purchase or sales contract, etc.); (5) Will; (6) Voter's registration; (7) Driver's license; (8) Military documentation that shows the taxpayer and spouse were assigned to base housing in the domicile state; (9) Federal tax returns filed while residing in the domicile state; (10) Bank account statements from accounts in your legal state of residence. If your state imposes an income tax, you should also provide a copy of the law or filing instruction that exempts you from filing an income tax return.

Is it legal for TAX to request copies of military dependent ID cards? How is this information used?

Yes, the Department of Taxation may request documentation needed to establish residency status, including copies of military dependent ID cards. It is legal for the cards to be copied and used to demonstrate that a spouse was assigned to military (base) housing in the domiciliary or legal state of residence.

What if the documentation I have is expired?

Even if a document has expired, it may still be sufficient to prove residence in another state. For example, if you have an expired voter registration card or driver's license (today you often have to surrender your license when you get a new one, but that was not always the case) for the state for which you are claiming residence, and that document covers the period that your spouse was stationed there, it would support your claim of residence for that state.

 

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Employer Withholding 

If I qualify for exemption from Virginia income tax on my wages, how do I request that my employer stop withholding Virginia tax from my wages?

You can change or stop your withholding by submitting a revised Form VA-4 to your employer. 

My employer has already begun withholding Virginia income tax from my wages in the current year. How can I request a refund?

You should ask your employer to refund any Virginia income tax that was erroneously withheld in the current year. If your employer chooses not to issue refund, you may file Form 763-S once you receive your W-2 after the end of the taxable year.

 

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 Provisions for Other Taxes

Does the Military Spouses Residency Relief Act impact Virginia tax liabilities other than income tax?

Yes. The federal law contains relief provisions for personal property tax, as well as for income tax. In general, motor vehicles and other tangible personal property owned by the spouse of a service member will be protected from Virginia taxation to the same extent as if owned by the service member. Both the spouse and the service member must claim another state as their state of legal residency, and the property must be titled or leased in the name of the spouse, the service member, or both. For details, see Tax Bulletin 10-1.
 

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Last Updated 12/28/2012 15:30

 

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