Despite protections allowing military service members and their spouses to maintain a legal residence even when living elsewhere on military orders, they must still report income to another state in certain situations. How do you know where you need to file?
Disclaimer: I am not a tax professional, and this article can not cover every individual’s unique situation. You can and should retain the services of a tax professional such as an enrolled agent or certified public accountant who specializes in personal income taxes for military members and their spouses.
First, you need to consider the sources of all your income and whether that income is earned or unearned. Earned income is income from a W-2 job or self-employment. Unearned income includes things such as interest on bank accounts and profits from rental real estate (unless you are a real estate professional).
Read More: Understanding All the Deductions on Your 2026 Military Leave and Earnings Statements
Every U.S.-based individual has a state of legal residence. Typically, one changes their state of legal residence when they physically move from one state to another state. However, the Servicemembers Civil Relief Act (SCRA) protects service members and their spouses from having to change their state of legal residence with every move. Instead, they can maintain an old state of legal residence as long as their move was in conjunction with military permanent change of station (PCS) orders.
Rules for spouses have evolved over the years, and while you’ll still find reference to the phrase Military Spouses Residency Relief Act, that’s no longer the relevant law. Under the current version of SCRA, military spouses may retain a properly established state of legal residence regardless of their service member’s state of legal residence.
SCRA allows service members and their spouses to elect to have their eligible income taxed in the following:
- Service member’s state of legal residence
- Spouse’s state of legal residence
- State where physically living on PCS orders
Under the Servicemember’s Civil Relief Act (SCRA), income eligible for these special rules includes the military income of the service member and (nearly) all earned income of the spouse. Earned income includes wages from jobs, reported on a W-2, and most self-employment income. Unearned income includes things such as profits from rental real estate. Special rules may exist for unusual income such as royalties.
You’ll notice that non-military income earned by the service member is not protected by SCRA rules, so that gets taxed by the state where it is earned. As such, the service member will need to file a non-resident return in that state, and they may or may not actually owe income taxes.
Read More: Military Spouses: Here’s What to Remember About Filing State Taxes
Additionally, income such as rental real estate is taxed where the property is located. If you own property in multiple states that have a state income tax, you may need to file in each state. You probably want to file even if you don’t owe that state any money, because it shows the state that you don’t have a tax liability and you may be able to carry over losses to a future year.
Importantly, SCRA protections do not apply if the spouse is living somewhere not on military orders or if they work in an adjacent state that does not have reciprocity. For example, a spouse living in Tennessee due to the spouse’s orders may work in Kentucky. Unless Tennessee and Kentucky have tax reciprocity rules for everyone, they may not be able to use the provisions of SCRA to attribute their income elsewhere. Similarly, a spouse who is a legal resident of Maryland cannot keep their Maryland residency if they live in Florida while their service member does a geographic bachelor tour in California, because they are not in Florida on military orders. And, in some cases, the state where the spouse actually works may require a tax return simply to show that they don’t owe any taxes there.
Additionally, if either spouse changes their state of legal residence mid-year, they may owe a tax return to either or both states.
While the protections are based in federal law, the implementation of these protections is handled by the individual states. You will need to figure out the rules for each state where you have income and see if any special situations or nuances would require you to file in that state. SCRA protections can simplify your tax requirements and quite possibly save you money, but they don’t eliminate the need to file in every appropriate state.
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