Husband is active-duty military. We both have CO residency, own a home there, and lived in CO through Oct; Amry then moved us to AZ. Do we have to file a return in AZ?

[smashingrosie80]

As well as his military pay, we have income from renting out our Colorado home, and my direct-sales business.

From what I understand of the MSRRA, we pay tax on ALL our income to Colorado only. If that is the case, do we even have to file an AZ return?

If not, is there a way to only file ONE state return in TurboTax? - based on our address info, the program wants us to file CO and AZ returns.

[Phillip1 · Accepted solution]

Because of MSRRA, you will only need to file a Federal Return and a return with the state of Colorado. See the following from TurboTax FAQ: Military Spouses and State Taxes:

… … to qualify under the MSRRA, the following conditions must be met:

• The service member is stationed, in compliance with military orders, in a state that is not his resident state,

• The nonmilitary spouse is in that state solely to live with the service member, and

• Both the service member and spouse have the same resident state.

When the nonmilitary spouse meets the above qualifications, their wages from services performed in that new state will only be taxed in their resident state, not by the state they are currently living in.

IMPORTANT: when living in a non-resident state, the spouse needs to check the state laws to determine if they need to declare their non-residency for withholding purposes. This may be required by their employer on an annual basis.

Since you are self-employed, Arizona withholding should not be an issue. However, if you do take a W-2 job in Arizona, you will want to consult with this brochure regarding MSRRA, tax withholding, and residency. See AZDOR Publication 705.