Non-resident Military Spouse Exemption

[boarf16]

I am a Texas resident, my wife is a Washington resident, we both work and live in Alabama. Specifically for my wife:

Over the past two years, I was finally able to get A-4-MS completed and sent to her work and this is the first tax season where they didn't actually take out any Alabama State Taxes (only local income tax). So her W-2 looks similar to mine with boxes 15-17 blank. Previously I had to still file Alabama State taxes in order to get the refund Under the Military Spouses Residency Relief Act.

Since she didn't actually pay Alabama States Taxes, do I need to file anything for Alabama States Taxes?

Thank you!

[JohnB5677]

No, unfortunately, you may have misunderstood.  If your wife is working in a non-military capacity, she will pay taxes to the state she is working in (AL).  Her income would also be reported in Texas if they had an income tax.

Please see item 7.  Common misunderstandings and uncertainties.

 Military Spouses Residency Relief Act (MSRRA) (Public Law 111‐97)

c.  The MSRRA does not relieve the spouse from paying State income taxes on income other than for services performed in the non‐domiciliary State.  For example, income from the sale of real property or from the rental property would be taxable in the State where the property was located, MSRRA notwithstanding.  The spouse must also comply with the tax laws of the domiciliary State

[boarf16]

According to Military One Source as of Nov 2021: She can keep her state of legal residence and one pays taxes on income in their states... which would mean she doesn't pay Alabama taxes because she is resident of the state of Washington. 

What am I missing from the info below? Also, the state of Alabama has refunded the state taxes under the MSRRA for the past two years. 

Maintaining your legal residence under MSRRA

Every person has a state of legal residence. For most civilians, their state of legal residence is the place where they live. But service members and their families move frequently. The SCRA allows active-duty military members to maintain their legal residence in the place they consider home.

The Military Spouses Residency Relief Act allows military spouses to declare the same state of legal residency as their spouse. The Veterans Benefits and Transition Act allows spouses to make that choice regardless of when they were married. The following conditions must be met to qualify under the MSRRA:

• The service member is living on military orders in a state that is not his/her resident state.
• The spouse is in that state solely to live with the service member.
• Both the service member and spouse have the same resident state.

The spouse only pays taxes on income in their state of legal residency when they meet the above conditions.

[DMarkM1]

As long as your spouse's income is from wages for services performed in AL, her income is exempt from AL taxes and you do not need to file an AL tax return.  

The exceptions noted by @JohnB5677 are for items like rental income, or sale of an AL property for example.

As you note she must meet all the conditions in the link.  

[SteamTrain]

@boarf16 

I agree with @DMarkM1 as long as you are in the military.

1)  Assuming your wife is a civilian and only gets a W-2 for working income, then no AL tax return is required.

2)  Also, if your spouse is a civilian, she cannot claim WA as her resident state, but as your civilian spouse, she can claim your state (TX) as her state of legal residence (SLR).   

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3)  Assuming the above is correct, an AL tax return would only be required now, if either of you worked a self-employment, or non-W-2 independent Contractor job in AL, or if you owned property in AL that either of you rented out for income.

4)   And a bit strangely, if you, as the military person, worked a civilian W-2 job off-duty in AL, then an AL tax return would be required for that W-2 and taxed at whatever rate AL requires.