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Tuesday, April 2, 2019

2018 Law Change Benefits State Tax Filings of Servicemember Spouses

Well, I missed this one until today in working on more tax update materials for presentations.  On December 31, 2018, P.L. 115,407, Veterans Benefits and Transition Act of 2018, was signed into law. The summary on the congressional website for this bill notes it deals with headstones, markers, and cemeteries. But, it deals with a lot more. Relevant for state tax purposes is Section 302 of the Act. It provides:

"For any taxable year of the marriage, the spouse of a servicemember may elect to use the same residence for purposes of taxation as the servicemember regardless of the date on which the marriage of the spouse and the servicemember occurred.”

The summary of the bill provides: “Sec. 302. Residence of spouses for servicemembers for tax purposes: This provision would amend SCRA to allow the spouse of a servicemember to elect to use the same state of residence as the servicemember for state or local tax purposes regardless of when or where the two individuals were married. These changes would apply with respect to any return of state or local income tax filed for any taxable year beginning with the taxable year that includes enactment.”
This change is effective for any state or local income tax returns filed for the tax year that includes enactment date. So it applies starting with 2018 tax returns.

The California Franchise Tax Board didn't miss the tax provision of the Act.  FTB Pub 1032 for 2018 (2018 Tax Information for Military Personnel) states:

“This change also applies to California. Income of a servicemember spouse for services performed in California is not subject to tax if the spouse elects to use the same residence as the servicemember who is a nonresident of California. If the spouse makes the election, write “VBTA” at the top of the tax return in RED INK, or include it according to the software’s instructions.”
It is also explained in the FTB’s 2018 conformity report.
If you or a client is married with one spouse serving in the military, see if this provision is relevant and if so, how your states of residence treat this, so income is reported in the most tax favorable state, and the state that might be expecting reporting knows that an election was made.
Seems like a fair provision given what is asked of members of the military and their families and the reality of multiple and frequent moves.
What do you think?

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