Yes for your Federal Return. The IRS will tax all of your income regardless of the state in which you earned it. The 763-S is to request that the Virginia state tax withholdings be returned to you because they were mistakenly withheld, most commonly because you live in a reciprocal state with Virginia or you are Active Duty Military stationed in Virginia. But for the IRS this does not matter, as they tax all of your worldwide income. It does matter on your state return, however, so here are the other possibilities with that.
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Reciprocal state. That also is a yes. Your state is also allowed to tax all of your income no matter where you earned it. The reciprocal agreement with Virginia means that you were supposed to have taxes withheld for your home state, and not Virginia. If this is your case, you will want your wife to file a form with her employer that stops taking out Virginia tax but rather only to your state. This way you do not need to file anything for Virginia in the future.
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Active duty Military. It depends on your SLR. Your wife's income is also potentially taxable to your SLR, if that state has a state income tax. There are a number of states that have no income tax at all, and a number that do have income tax but do not tax active duty income. If you are in one of the states that does have an income tax but does not tax active duty, your wife's income must be included on the return. Again, she may file a form with her employer to have the taxes taken to the correct state and not Virginia. However, if your state does not have an income tax, there is nothing to report except to advise the employer to stop withholding VA tax.
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