What is my wife's state of residency for state tax purposes?

Question

I am in the military and have moved to three different states in the past four years, with my wife coming with me. She has worked in all three states and we are confused as to which state she is considered a resident of for tax purposes. We do not vote, she has a Connecticut driver's license, and we don't own any property. She is a civilian. That is all I can think of that may be relevant, but if there is something I forgot, send me a message. Thanks for the help in advance!

Answer 1

That depends. Don't you just hate that answer? Sorry to do that to you but it really is the only answer.

Military personnel are protected by the Soldiers & Sailors Civil Relief Act of 1940, renamed the Servicemembers Civil Relief Act when it was updated in 2003. Their domiclie does not change merely by being stationed outside their home state. They cannot be assessed state taxes (except sales taxes) by any other state. Their military income is protected from taxation by any state but their home state and unless they have off-duty income in the state where they are stationed they will pay no state income taxes except to their home state. They maintain their home-state driver's license and still vote in their home district. (Shame on you for not voting, by the way. More on that later)

Dependent family members get no such protections, at least under federal law. That said, most states do extend certain courtesies to the family members. They are allowed to maintain their home-state driver's license as long as it remains valid and can continue to vote in their home district. Taxes, however, are an entirely different story. Since dependents don't have military income, any money that they earn is taxed by the state where they reside.

There have been endless arguments as to whether their home state retains the right to tax their income (as it does for the military member) and there have even been a few court cases where the state attempted to tax the out-of-state income of a dependent family member. To date, no state has prevailed in one of those cases at least while the family was located outside the state. Why? Enter the concept of your "tax home."

Everyone has a tax home; for the majority of us it's just our home address. But if you move around a lot it can be tricky to define. For the military member it's easy since their domicile doesn't change unless they take clear action to change their domicile.

For dependents it gets a bit fuzzy, but that can be a good thing. Their tax home does move when they move. They could take assertive action to preserve their tax home in their home state by filing non-resident returns where the military member is stationed and resident returns in their home state. They would get a credit in their home state for state taxes paid in the state where they filed as non-resident, thereby effectively paying state taxes at the higher of the rates in the two states. Few dependents go through that hassle as it complicates things. The only successful assertions of domicile by the former home state occured after the period of military service of the military member ended and they actually returned to their home state immediately. (Those cases are rare and usually involve cases where substantial tax is involved, so don't get too bothered by it. In most cases they were limited to the military member who changed their domicile as a tax dodge while on active duty -- say from MA to TX while stationed in TX -- but then immediately returned to their former domicile immediately upon the expiration of their term of service. CA and MA have both successfully assessed taxes on former military members for that dodge though even a brief delay in returning to the former domicile is sufficient to prevent a successful assertion by the state.)

So, what does all that have to do with dependents? For the most part, dependents opt to have their local residence where the military member is stationed considered their tax home. They do that simply by filing resident state tax returns in those states and paying taxes locally.

OK, I did say I'd have more comments on voting. Your vote is your chance to have a say in things. It is one of our most cherished rights but like all rights it's one that you must exercice regularly in order to preserve it. I served for over 21 years on active duty, all over the globe. Not once in all of those 21 years did I ever miss a vote. Sure, it's a bit of a hassle sending off those postcard ballot applications, but it is just as much your civic duty as is your military service! You don't shirk your military duty. Why do you shirk your civil duty?

Answer 2

You should search for the taxing authority for each state online and look for a "Who has to file", "Filing Requirements" or "FAQ" link. Adam's answer is correct. She may have to file as a part year resident in each state.

Answer 3

If you lived in all three places she may have to file part-year resident returns in all three states.

Why don't you vote?

Answer 4

She has 3 tax returns to file.