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New Federal change for “Married Military Taxpayers” that can affect how they file their state tax return. Good Stuff!

There has been a change in federal law that may affect your military clients’ tax filing position if they have a spouse who is earning income while in California.

Veterans Benefits and Transition Act of 2018 (Sen. No. 2248, 115th Cong., 2d Sess. (2018).) passed on December 31, 2018. In particular, section 302 of the bill amended the Servicemembers Civil Relief Act to provide certain state requirements related to the residency and domicile of military spouses. These changes apply to California.

Spouses of service members may now elect to use the same residence as the service member for tax purposes on any taxable year of the marriage regardless of the date on which the marriage occurred. It is effective for California income tax returns filed beginning with the taxable year that includes the date of enactment (2018).

Make the election

Similar to other military elections, see Tax Information for Military Personnel (FTB Pub 1032), in order to make this election you must write, “VBTA” at the top of the tax return in RED INK, or include it according to the software’s instructions.

The Military Spouses Residency Relief Act (MSRRA) was signed into law on November 11, 2009. The MSRRA amended the Servicemembers Civil Relief Act to provide that, for taxable years beginning on or after January 1, 2009, a service member’s spouse is considered a nonresident for tax purposes if:

  • The service member and spouse have the same legal residence or domicile outside of California

  • The spouse is in California solely to be with the service member who is serving in compliance with military orders.

In addition, a qualified spouse’s income for services performed in California is not considered to be from sources within this state if:

  • The spouse is not a California legal resident or domiciliary because the spouse is in California solely to be with the service member serving in compliance with military orders

  • Both have the same out-of-state legal residence or domicile

With the recent change, the spouse of a service member can claim the same residence as the service member as long as they meet the above criteria, regardless of when they were married and regardless of the spouse’s original state of residency.

Example: Henry, a military service member, is a Florida resident. He married Elita in 2016. Elita grew up in Oklahoma and she is domiciled there. Henry has PCS orders at Camp Pendleton, California dated January 15, 2018. Elita is also living in California solely to be with Henry who is serving in compliance with military orders. Elita has a job working at a local hardware store in nearby Oceanside.

Prior to the passage of the Veterans Benefits and Transition Act of 2018, Elita could not elect to claim Henry’s state of residence, Florida, because they did not share the same state of domicile. Now, she can elect to have the same residence outside of California as her military spouse, and she is considered a nonresident for tax purposes; and since she is in California solely to be with the service member who is serving in compliance with military orders, her income from the local hardware store is not considered to be from sources within this state.

See 2018 Tax Information for Military Personnel (FTB Pub 1032) for more information about military personnel income tax.

Click here for more information: https://www.ftb.ca.gov/professionals/taxnews/Editions/2019/March/3.shtml

steve@stevesimsea.com