I am active duty military. my state of residency is still Michigan, even though I live in Virginia now. My wife moved to Virginia from Michigan in may of 2016. She has a job here in Virginia and her w-2s have state income tax taken out. However, it keeps telling me that we should file separately because we are paying separate state tax. My army w-2 does not have any state taxes taken out. How do I go about filing state taxes?
You are Michigan residents, and file a joint return to Michigan. See the following FAQ on Military Spouse rules, which explain why this is the case: https://ttlc.intuit.com/replies/3302300 You will need to file a Virginia return to get back the Virginia taxes. There are two ways to do this. You can “zero out” the Virginia income on TurboTax that your wife earned, because it is not Virginia income. (Best is for your wife to ask company to issue a corrected w-2 showing her wages as Michigan income per MSRRA rules. It would show zero income for Virginia but taxes taken out to Virginia). Also, this will help the company take out taxes only to Michigan, which is still your state of residence for both of you. (Of course, your military income is exempt in Michigan. Make sure your W-2 is marked in TurboTax as active duty military).
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