The Military Spouse Residency Relief Act of 2009 (MSRRA) is now law. Unlike some laws (gravity, for instance), MSRRA is not necessarily very easy to understand. Hopefully most states have already gone through their “growing pains” in adapting to and adopting the MSRRA, but that does not mean there aren’t going to be questions. If your spouse has PCS orders, here are three things you should know about the MSRRA that can help you make the best choices for your family.
First: MSRRA does not apply to driver’s licenses! Licensing of drivers is the bailiwick of the individual States (thanks to the Constitution), and not the Federal government. (If you have driven in Washington, D.C. you may wonder if anybody is licensing drivers anymore, but that’s beside the point.) If you PCS to another state, you must comply with their rules on obtaining a driver’s license.
Second: MSRRA does not let you choose any domicile. Simply put, a residence is where you are and a domicile is where you belong. For most people, and almost everyone not associated with the military, domicile and residence are the same. What the MSRRA says is you as the civilian spouse no longer have to change your domicile (and thus your voting registration and your taxes) just because you have changed your residence (i.e. where you live) to follow your active duty spouse. You have two choices under this law: keep the domicile you have before you execute the PCS move, or change domicile to where you go after the PCS.
This seemingly straightforward choice has two caveats, and they are important:
- you cannot choose a domicile other than where you are or where you’re going. Much like the American Electoral process, third parties are irrelevant to the matter at hand.
- the “keep” option only applies if your service member spouse has that domicile as well. In other words, if your spouse’s domicile is New York and you are currently stationed in Virginia, if you move to Florida you can’t claim Virginia as your domicile under MSRRA unless your spouse changes as well.
Remember that for all your plans, domicile is ultimately what a judge says it is. If you’re making domicile choices, do not try to “game” the system in any way! These new rules are generous, so don’t try to abuse them.
Third: MSRRA can be an effective tax-planning tool. Suppose you live in a state with low income taxes, and receive PCS orders to, say, California. Under MSRRA, if you don’t change your domicile, you pay taxes to your current state, not to California. This results in a significant change in how much you pay in taxes!
Bear in mind that you’ll still owe property taxes if you buy a house off base, and you’ll certainly owe sales taxes. Under MSRRA, however, your income taxes will go to Uncle Sam and your state of domicile. There is a concept in tax circles known as “source income”. Even under MSRRA, some of your income may be claimable by your state of residence. The good news is the state must clearly tell you what it considers this income to be. Consult the state board of taxation or a CPA.
These can be confusing questions, and if you have any doubts at all, consult the base JAG, the command financial officer, or a civilian lawyer or CPA. Make sure to consult the state where you’re moving, as their laws and interpretations may differ to some degree.
Being a military spouse is tough, especially when our loved ones tend to disappear for six to fourteen months at a stretch. MSRRA is an effort by the government to make things a little easier on us. If you forget everything else, remember this: when you PCS, you now have a choice whether or not to change where you vote and pay taxes. Educate yourself and make the decision that makes sense for your family.
(photo credit: Arvind Balaraman)