Military Spouse Wage Withholding Exemption - The Military Spouses Residency Relief Act (P.L. 111-97 or "MSRRA")

For taxable years beginning with 2010, a nonresident servicemember's qualifying spouse whose wages are exempt from Massachusetts personal income tax may claim an exemption from Massachusetts withholding tax. A military spouse who qualifies for Massachusetts wage exemption must complete Form M-4-MS, Annual Withholding Tax Exemption Certificate for Military Spouse pdf format of M_4_MS.pdf
, and provide required documentation.

The Form M-4-MS must be validated on an annual basis. The military spouse must show continued eligibility for the exemption. Scenarios that will cause the spouse to no longer be eligible include:

  • Servicemember leaves the service;
  • Divorce;
  • Voluntary physical separation due to duty changes - the service member's orders move him or her to a location outside Massachusetts where the spouse is allowed to join him or her but chooses not to; or
  • Spouse commits an action that clearly establishes Massachusetts as his or her state of domicile.

Military Spouse Wage Withholding - Filing for Refund:
A service member's spouse who has Massachusetts personal income tax withheld, who qualifies for exemption from Massachusetts tax, but did not submit a form M-4 MS must file a Form 1-NR/PY Massachusetts Nonresident Income Tax Return, to claim a refund. For this purpose, the Form 1 NR/PY return must be paper filed; no e-file returns are allowed. The qualifying spouse must write "MSRRA," across the top of the Form 1 NR/PY and attach copies of the following:

1. Military Spouse ID card.
2. Department of Defense Form 2058, State of Legal Residence Certificate – "legal residence for purposes of withholding state income taxes from military pay;"
3. LES, Leave and Earnings Statement of service member; and
4. Service member's current military orders assigning such service member to a post of duty in or near Massachusetts.

The qualifying service member's spouse must pay tax to the state of domicile to the extent required by the state of domicile.

Earned Income Credit Not Allowed. A nonresident spouse who qualifies for exemption from Massachusetts tax under the MSRRA does not qualify for the Massachusetts earned income credit applicable to nonresidents since, under the MSRRA, "income for services performed by the spouse of a servicemember is not deemed to be income for services performed or from sources within Massachusetts. In order to claim the earned income credit, a nonresident taxpayer must have "earned income . . . from Massachusetts sources."

How to complete Form 1 NR/PY to receive a refund of withholding. The spouse must include the exempt wages that were subject to withholding on line 5 of Form 1 NR/PY, making a subtraction of such wages on Schedule Y, line 4.

Examples, Refund of Wage Withholding

Example 1.
Carol's spouse, Robert, is a servicemember on active duty whose military orders assign him to a military base in Massachusetts. The domicile of both Carol and Robert is Georgia. For the tax year, Robert has military income (exempt from Massachusetts tax under the SCRA) that is subject to tax in Georgia, and Carol has wages from employment in a store located in Massachusetts. Carol and Robert have no other income subject to tax. Carol's employer withheld Massachusetts personal income tax from her wages and issued a W-2 showing the total Massachusetts tax withheld.

As a qualifying military spouse, Carol files a paper Form 1 NR/PY and writes across the top "MSRRA." She enters the following on:

  • Form 1 NR/PY, line 3 , Carol's total income from the federal return (and, for a joint return, Robert's military wages would be included);
  • Form 1 NR/PY, line 5, Carol's W-2 wages on line 5 of Form 1 NR/PY;
  • Form 1 NR/PY, line 14, Nonresident deduction and exemption ratio:
    • lines 14(a) - 14 (d), 0;.
    • line 14(e), Carol's W-2 wages (and, for a joint return, Robert's military wages);
    • line 14(f), enter amount from line 14(e);
    • line 14(g), the ratio will be zero (0.00).

To deduct Carol's W-2 wages from "Massachusetts source income:

  • Schedule Y, lines 4 and 16, Carol's W-2 wages from "Massachusetts source income;"
  • Form 1 NR/PY, lines 19 & 20, Carol's W-2 wages from "Massachusetts source income;"
  • Form 1 NR/PY, lines 41 and 48, the amount of Massachusetts withholding from Carol's W-2 wages;
  • Form 1 NR/PY, lines 49 & 51 as the refund amount.


Example 2.
The facts are the same as example 1 for Carol and Robert, except Carol also has lottery winnings. Carol has Massachusetts W-2 wages of $10,000 (exempt from Massachusetts tax under the MSRRA) and Massachusetts lottery winnings of $15,000 (not exempt from Massachusetts tax under the MSRRA), and Robert has military wages of $30,000 (exempt from Massachusetts tax under the SCRA).

As a qualifying military spouse, Carol files a paper Form 1 NR/PY and writes across the top "MSRRA." She enters the following on:

  • Form 1 NR/PY, line 3 , Carol's total income from the federal return, $25,000 (and, for a joint return, Robert's military wages of $30,000 would be included for a total $55,000);
  • Form 1 NR/PY, line 5, Carol's W-2 wages of $10,000 on line 5 of Form 1 NR/PY;
  • Form 1 NR/PY, line 10(b), Carol's lottery winnings of $15,000;
  • Form 1 NR/PY, line 12, Carol's total income of $25,000;
  • Form 1 NR/PY, line 14, Nonresident deduction and exemption ratio:
    • lines 14(a) & 14 (d), Carol's lottery wages of $15,000;
    • line 14(e), Carol's W-2 wages of $10,000 and lottery winnings of $15,000, total $25,000 (and, for a joint return, Robert's military wages of $30,000 would be included);
    • line 14(f), enter amount from line 14(e); $25,000 ($55,000 if MFJ);
    • line 14(g), the ratio will be .60 ($15,000/$25,000; or .2727 if MFJ ($15,000/$55,000)

To deduct Carol's W-2 wages from "Massachusetts source income:

  • Schedule Y, lines 4 and 16, Carol's W-2 wages from "Massachusetts source income;"
  • Form 1 NR/PY, lines 19 & 20, Carol's W-2 wages from "Massachusetts source income;"
  • Form 1 NR/PY, lines 41 and 48, the amount of Massachusetts withholding from Carol's W-2 wages;
  • Form 1 NR/PY, lines 49 & 51 as the refund amount.


Note: The FICA deduction for Carol's wage is not allowed as the wages are excluded on Schedule Y.


Promoters and Other Persons Making Payments for Events

In general, entertainers, participants in certain athletic events and other individuals who are compensated for appearances or events in the Commonwealth are subject to tax on their earnings attributable to such activities.

DOR is authorized to require persons other than employers to
:
 

  1. deduct and withhold taxes from payments made by such persons to residents, nonresidents and part-year residents of Massachusetts;
  2. file withholding returns as prescribed by DOR; and
  3. pay over to DOR, or to a depositary designated by DOR, the taxes so required to be deducted and withheld.

Exception for certain payments of $10,000 or less:
Any corporation, foundation, organization or institution that is exempt from federal taxation under § 501(c)(3) of the Internal Revenue Code is not required to withhold taxes from persons who are not employees except where payments made by the exempt person for a particular event exceed $10,000.

Promoters and other persons making payments for events in the Commonwealth must register online for withholding tax at WebFile for Business ("WFB") at www.mass.gov/dor. The promoter or other person making event payments must withhold state income taxes at the rate of 5.3% from the entertainer, athlete, or other event participant, and remit those taxes with the appropriate form in a timely manner. For purposes of the withholding requirement for event payments, payments subject to withholding include, among other things, amounts paid in connection with a performance, an entertainment or athletic event, a speech or a seminar.

The new withholding law is not restricted to promoters and similar persons. At a future time, DOR may require withholding under G.L. c. 62B, s. 2 for persons other than those making payments for events. DOR will announce prospectively any additional withholding obligations and requirements.


Massachusetts References