Change Spouse Domicile under MSRRA

[Chef Wasabi]

I am currently stationed at Fort Bragg, NC with my spouse who has paid NC income taxes for all of 2019.  Under the new MSRRA, how do I change her residency to my state of residency (TX) and go about getting her refunded for all of the state income tax she has paid for 2019?

[MaryK4 · Accepted solution]

For 2019, you will have to file a North Carolina nonresident tax return with no state income and you will get a refund of the withholding.  If she has not already done so, she must contact her employer and request MSRRA nonresident status so no more state taxes are withheld.

[Chef Wasabi]

Great thanks. And just to confirm - NC cannot tax her income despite her workplace being in NC. I am referring specifically to the bullet 2 of the "Nonresident with income from NC sources" clause:

Nonresidents: If you were not a resident of North Carolina at any time during the tax year 2019 but you received income in 2019 from North Carolina sources that was (1) attributable to the ownership of any interest in real or tangible personal property in North Carolina, (2) derived from a business, trade, profession, or occupation carried on in North Carolina, or (3) derived from gambling activities in North Carolina, and your total gross income from all sources both inside and outside of North Carolina equals or exceeds the amount in the Filing Requirements Chart for your filing status, you must file a 2019 North Carolina individual income tax return, Form D-400.

Thank you!

[DMarkM1 · Accepted solution]

Correct unless applying for relief under the Military Spouse Residency Relief Act.  Here is the link to the NC DOR site. 

Her income is not subject to NC income tax if the the three conditions listed therein apply.  Plus to change her residency to your state of residency is only a matter of declaring that on the tax return by indicating her resident state is TX. 

You will, as MaryK1101 states, need to indicate you have income from another state (NC) in the "Other State Income" question in "My Info" in order to generate the nonresident return to get the refund.