Military spouses now have choice of residency for tax purposesBy: National Association of Tax Professionals
January 19, 2023

The Veterans Auto and Education Improvement Act of 2022, passed on Jan. 5, 2023, brings updates to domicile laws. Previously, the spouse of a military taxpayer could use the military taxpayer’s domicile for tax purposes. Now, the spouse can use either their state of residence, the military taxpayer’s state of residence or the permanent duty station of the taxpayer.

How can this benefit your clients?

When determining domicile, which impacts state taxes, a spouse of a service member can choose which state to claim as their domicile assuming it is either the state they call home, the state the service member’s residence or the state of the service member’s permanent duty station.

Example of application

We have Bethany, a service member, and her spouse Alex, who is not a service member. Combined, their taxable income is $85,000. Bethany has determined her state of domicile is Minnesota, which has an effective tax rate of 5.29% and her permanent duty station is in South Dakota, which has no state income tax.

Alex resides close to his family in Alabama, which has an effective tax rate of 4.07%. Alex can use the election to claim domicile in South Dakota for tax purposes, as it is Bethany’s permanent duty station. This election can potentially save Bethany and Alex nearly $4,000 in state income taxes (average of 4.68% between Minnesota and Alabama taxes, $85,000 taxable income, no exclusion for military service income in MN or AL assumed).

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penAbout National Association of Tax Professionals

The National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.

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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.

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