Military Spouse Overseas - State taxes

[jmrichie]

File Married/Joint. We were living in CA for more than half of 2021 but previous years have filed IL state return based on military members home of record. We are now stationed overseas. Is all my income for the year (part income earned while in CA / part income earned overseas) all taxable in IL. Meaning, do I still pay IL income tax on income I earn while overseas? 

[MaryK4]

Yes, active-duty service members file state income taxes in their state of legal residence. Military service members are not required to change their legal residence when they move to a new state solely because of military orders; they may maintain their legal residence in a state where they have previously established it.  

You will be required to follow the rules of Illinois residents. For Illinois, you must file the state tax return, but you may subtract military pay that is in your AGI, including pay for duty in the armed forces, including basic training.

[jmrichie]

Thank you. I have a question in response to your answer.  I understand that the active duty service member will file an IL state income tax return since it is his home of record. I am confused about my income as a non-military working spouse.  2021 I did have partial year earnings in the US (CA).  Once we moved overseas in the fall of 2021, my employer would not withhold state income taxes because they state I am earning income overseas. It is the federal govt position.  Am I liable for state taxes on all of my earnings (partial earning in CA and partial earned overseas)? And in 2022 if I have full earnings while overseas, am I still liable for IL state income taxes as well. I called the IL Dept of Rev a few months ago who stated 2021 taxes might be different since I did earn income partially while in the US but if 2022 I earn all income outside of the US, I would not have to. I have no confidence in that answer however. 

[JohnB5677]

I want to be sure that I have the right circumstances.

Both you and your wife are active-duty members.

You both have a home of record in IL.

Your wife is overseas and you were in the states, but moved to CA for a partial year.

While in the states you worked at a non-active duty federal government position.

If this is correct you will have to file both a CA and IL tax return.  All of both of your military pay would go to IL, and your non-military pay would be taxed in CA, and then again in IL, but IL will credit you for taxes paid in CA.

If your military home of record is IL:  I also am concerned about the taxation in Illinois.  I suggest you contact a tax professional that focuses on foreign income.  There are two areas that concern me.

1. You must have foreign earned income, excluding any worldwide income you may have earned as an employee of the US government.
2. You must have a tax home in a foreign country.
3. You must be a US citizen (or, depending on other criteria, a US resident alien).