American taxpayers are just a few weeks away from the Internal Revenue Service’s (IRS) April 15 filing deadline, but for transient demographics — like military spouses — knowing what state to claim can be confusing.
The Servicemembers Civil Relief Act, or SCRA, contains specific provisions about how state and local governments may tax the income of military spouses who move because of their active-duty service member’s military orders. These rules have evolved over time, allowing military spouses to keep their state of legal residence even when they are physically living and working elsewhere. Additionally, military spouses may elect to use their service member’s state of legal residence for state income tax purposes.
To apply these rules, it’s important to understand the concept of state of legal residence. For civilians, their state of legal residence changes if they move from one state to another state. SCRA permits service members and their spouses to retain a properly established state of legal residence if they move solely due to the service member’s duty assignment. For example, a military spouse who is a legal resident of Maryland does not need to change their legal residence if they move on orders to Tennessee.
READ MORE: Resources for military families getting ready to file 2025 taxes
A state of legal residence is properly obtained according to the laws of that state, which typically includes actually living there, registering to vote, actually voting, obtaining a driver’s license, registering vehicles, and paying state income taxes, if appropriate. In the case of the service member, this is also indicated by the state that you tell the military is your legal residence, as shown on your Leave and Earnings Statement (LES). None of this is a sole indicator of legal residence, rather it is the intent demonstrated by all your small actions.
This typically means that most service members and spouses may be legal residents of the state where they entered the military or got married. Then, if stationed in a state with advantageous tax laws, they may change their state of legal residence to that state. While older versions of the law required the service member and the spouse to share the same state of legal residence, that is no longer true.
Once you understand legal residence, then you can apply the provisions of SCRA that talk about where a service member and their spouse may elect to have their covered income taxed. Under the current version of the law, service members and their spouses may elect to have their eligible income taxed in either:
The state of legal residence of the service member
The state of legal residence of the spouse
The state where they physically reside on orders
Interestingly, the law allows military spouses to use the provisions for all of their earned income, while only the military income of the actual service member is protected. Non-military income of the service member is taxed in the state where it is earned. Unearned income may be taxed in the state where it is earned or in the elected state, depending on the type of income and the specific laws of the state where it is earned.
While revisions to the law continue to make it more generous, there remain a few specific conditions that must be met in order to take advantage of this part of SCRA. First, neither a service member or a spouse may just “pick” a state of legal residence. The law permits you to keep a home, not create one. The underlying determination of the person’s state of legal residence still depends on state law and the actions the individual has taken. They must actively demonstrate their presence in the state and their intent to make it their legal residence.
Second, the spouse’s location must be due to military orders. Unaccompanied orders, living apart voluntarily, and other situations do not qualify for these tax protections. If you decide to stay at an old duty station because your kid is really happy in their school, you will lose the tax protections of SCRA when your service member moves to their new duty station.
It’s important to remember that while SCRA sets rules regarding residence and taxation, the states remain responsible for implementing those rules within their own tax systems. Many states require spouses claiming protections under SCRA to complete specific forms, perhaps annually. You may need to provide documentation such as military orders or proof of your state of legal residence.
States may also have their own interpretations about certain types of income, whether withholding can be adjusted, and how this impacts separate versus joint filing. You may need to file a non-resident return to demonstrate that you don’t owe taxes.
The protections of SCRA can decrease the hassle of changing your legal residence, simplify your income tax filing, and possibly even save you some money. But they can also be confusing and frustrating. Spouses who are unsure how SCRA applies to their specific tax situation may seek guidance from a tax professional who understands the current law. One source of these professionals is the free MilTax service offered via Military OneSource.
This article is an update from previous information included in a 2020 piece titled “Filing taxes as a military spouse.” For more money-related topics, including scholarships, a PCS checklist, and a military retirement checklist, visit Kate Horrell online.
