Taxpayer and Spouse Different Residency-Military

[Susie7777]

Trying to file joint return, but because my husband is active duty military with a Home of Record of IL and stationed in IL, but I live and work in MO (civilian) and don’t qualify for MSRRA since he is not stationed in MO. 

I’m blocked from proceeding because “MO allows one of you to calculate your taxes independently, but TurboTax does not fully support this type of tax return using the interview. You will need to complete part of your return by leaving the interview and selecting Forms at the top”, but Forms is greyed out. How do I proceed?

[JohnB5677]

Yes, This has happened before, and there is a workaround.

• You will have to use the Desktop/CD version of TurboTax.
• This software allows up to 5 tax returns.
• Complete your Federal Married Filling Jointly tax return
  • There is no need at this point to prepare the state returns.
• Now prepare two more tax returns. one for you and oner for your husband
  • You will now complete the returns for your respective states.

You can file the joint federal tax return electronically.

You will have to mail the state returns because your not filing the Federal in the same format.

TurboTax will give the details for filling.

Please remember to sign the state returns.

[Susie7777]

Thank you, I didn’t think MO allowed the filing status (MFS) to be different from the Federal filing status (MFJ)?

[DMarkM1]

Replace the word "Stationed" with the word "Living".  You should file joint Federal and IL returns.  Then file a joint non-resident (military) return for MO.  You are living in MO to be with your military spouse living in MO on military orders.  Your joint IL return is attached to your MO return as proof of your IL state residence. 

Bottom line is you and your military spouse will pay taxes on a joint basis to one state of residence (military home of record) no matter where you live.    

If there were MO taxes withheld those will be refunded.  You will owe some taxes to IL if none were withheld for IL.  If you haven't already, you should have your employer stop withholding for MO and start withholding for IL.

[Susie7777]

Thank you. I selected that I qualify for the MSRRA and deducted his military wages, but it is now asking me for the MO-NRI SP Stationed State, would this be MO?

[DMarkM1]

Yes.  You and spouse are living in MO but you are both non-resident due to military orders with a home of record (resident) state IL. 

[Susie7777]

Thank you. I change the state of residence to “Just IL” and claimed the taxes paid to other states (MO) credit to reduce the taxes owed to IL.

However, on the following page, it asks to enter income from outside IL, such as my taxable interest, dividends, his military pay (total other subtractions) etc. Would I enter the amounts listed for interest, dividends and capital gains or leave at 0? His military pay amount I would leave at 0 I assume since this was earned while in IL.

[DMarkM1]

Almost there.  On your MO non-resident return exclude your wages and spouse's military wages only.  Allocate the other income sources to MO. 

Complete you MO non-resident return and take note of the income that was taxed and the actual income tax levied by MO. This will be used to claim the credit for taxes paid to another state on your resident IL return.  If you do the non-resident return first TurboTax will transfer the amounts for you.    

On your IL resident return there is no allocation.  All income belongs to your resident state.  Then, on your IL return claim the credit for taxes paid to another state to mitigate the double taxation by MO.   

[Susie7777]

Thank you; under the Personal Info tab, I changed my state of residence from MO to IL and claimed the taxes paid to MO on the IL return, but it’s asking me to review the amount of wages from outside IL…it’s suggesting to enter my W2 wages…should I enter 0 instead?
The MO return asks if we received $600+ from MO (I assume no?) and if we had any withholding from MO (I assume yes?) but then it asks what his MO duty station is…the base is in IL, not MO? 
I apologize for the continuous questions, there’s just so much to enter and I want to be cautious not to submit anything incorrect. If there is another resource I should call to walk me though the states, please advise. 

[DMarkM1]

Yes.  All your wages are IL only so zero outside of IL.  You will get a credit on your MO return for any taxes withheld on wages there because you allocated all wages out of MO, but answer "yes" there was withholding.  

Your other income sources (Interest/dividends/etcetera) are taxed in MO and that is the income that is double taxed and will be used to get a credit on your IL return.

On your MO return, if your other income besides wages was 600+, then answer "Yes"; if not, "No".  It's ok to put the duty station name there even if in IL.  

[Susie7777]

Thank you, I really appreciate your continuous support. Maybe I made a mistake (very possible), but after making those updates, the net state taxes owed to IL is over $400 (after applying the MO refund of taxes paid from my wages.) The IL credit for taxes paid to another state is equal to ~10% of the int, div, etc money earned in MO.

If MO allowed me to file separately, I’d owe 1/4 of what I now owe to IL. Does this seem right?

[DMarkM1]

You should also be getting a refund/credit on your MO taxes for any taxes withheld on your wages in MO; this will improve your net.  Check your MO form NRI to ensure all the items correspond to what should be happening.  

You should only be taxed in MO for those other income items and get a credit on your IL return for that tax paid to MO on those other income items.  

On the IL return your tax liability will be a bit higher as you are resident IL but did not have IL taxes withheld on your pay.  Again you are getting MO withheld taxes returned to you to mitigate. 

Your military spouse's military pay will not be taxed in IL nor MO, so is not a factor.