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Guide Tax Guidelines for Military Personnel

If you're a member of military personnel or have a spouse who is, there are some tax guidelines you have to follow. You may also get certain benefits or deductions.

Updated: February 1, 2021

Table of Contents

Filing Requirements

If you're a taxpayer who's enlisted in service as a Massachusetts resident and have not established legal residence elsewhere, you're still a Massachusetts resident. This applies even though you may be stationed outside of Massachusetts. If your gross income is more than $8,000, you file as a Massachusetts resident.

Nonresident military personnel who have not established a legal residence in Massachusetts and who are stationed in Massachusetts may meet the 183 days test but will usually not meet the permanent place of abode test since army barracks are not considered a permanent place of abode. You may however, have to report Massachusetts source income earned other than from military sources.

When determining whether you're a Massachusetts resident or not, a day you spend in Massachusetts while on active duty in the U.S. armed forces is not counted as a day you spent in Massachusetts. Thus, you or your spouse are not taxable under the 183 day rule even if you've spent more than 183 days on active duty in Massachusetts.

However, once you've spent more than 183 days in Massachusetts while not on active duty, you and your spouse are taxable as Massachusetts residents.

If you leave for service, your domicile is the same as it was before your service period, despite being absent for a long time from your state of domicile and residence in other jurisdictions. No changes happen until you establish a new residence with the intention to make it your new permanent home and decide not to return to your former residence. You will neither lose nor get a residence or domicile because you were absent or present in any tax jurisdiction in the U.S. on military orders.

Your income is considered to be earned in your state of domicile even if you're performing duties in another state.

Non-Massachusetts domicile

You cannot choose your state of domicile. To change your state of domicile, you must:

  • Have (or have had) a physical presence in the state, and
  • Intend to one day make it your permanent home. This intent is determined by facts and circumstances such as:
    • Owning property
    • Registering to vote
    • Titling and registering automobiles
    • Preparing a will in the state

The spouse of a servicemember must be able to establish that he or she was domiciled in another state (the same domicile as the servicemember) before moving into Massachusetts and that he or she maintained the domicile in that other state.

Massachusetts domicile

If you're a Massachusetts resident who:

  • Has not yet established domicile in another state
  • Resides outside of Massachusetts solely to be with your spouse (who is a servicemember) while complying with military orders
  • Earns income in that other state

Serving in a Combat Zone

Income

Relevant Income Adjustments (Deductions, Exemptions, and Credits)

Non-Massachusetts Military Service Compensation

Military compensation you get for services you performed or from a tax jurisdiction of the U.S. is not considered income if you're not a resident of the place you're serving in under military orders. Military service compensation includes both:

If you're a member of U.S. uniformed military personnel who was assigned to a military post, base, or station within Massachusetts and compensated for services while on active duty, the compensation is considered to be from sources outside of Massachusetts.

As a nonresident taxpayer, if you're required to file in Massachusetts because you have MA source income other than military source income:

  • When determining whether you qualify for NTS or LIC, do not include any military service compensation as non-Massachusetts source income. Specifically, Line 7 of Schedule NTS-L-NR/PY should not include as non-Massachusetts source income any military service compensation received during the taxable year.
  • When determining the deduction and exemption ratio, include military service compensation as non-Massachusetts source income. Include any military service compensation you received during the taxable year as non-Massachusetts source income on Form 1-NR/PY, Line 14e

Reporting on original tax return

  • Enter the amount on Form 1, Line 3 or Form 1-NR/PY, Line 5.

Additional Resources for Non-Massachusetts Military Service Compensation

Spouses of Military Personnel

As a spouse of a servicemember, you may be exempt from Massachusetts personal income tax on income from services you performed if all the following apply:

  1. The servicemember must have declared "legal residence for purposes of withholding state income taxes from military pay" in a state other than Massachusetts
  2. The servicemember is present in or near Massachusetts in compliance with military orders
  3. You're in Massachusetts solely to be with the servicemember, and
  4. You're domiciled in the same state as the servicemember.

Income from services performed in Massachusetts that is exempt

  • Wages
  • Other income from services you performed
  • Self-employment income if your business doesn't employ others, and doesn't employ significant capital, then the predominant source of your business' income is from your services and would qualify for the exemption.

    However, if your business employs others who perform services, then the predominant source of the business' income is not from your services and would not qualify for the exemption.

Income from services performed in Massachusetts that is not exempt

  • Items from or effectively related to participating in any lottery or wagering transaction in Massachusetts
  • Owning any interest in real or tangible taxable personal property in Massachusetts

Military spouse wage withholding exemption

If you're the spouse of a service member and:

  • Have your personal income tax withheld
  • Are exempt from Massachusetts taxes
  • Did not submit a Form M-4 MS

You can claim a withholding refund by filing a Form 1-NR/PY - Massachusetts Nonresident Income Tax Return.

  1. You must file the Form 1-NR/PY return on paper. Electronic filing is not allowed.
  2. Write "MSRRA" across the top of the Form 1-NR/PY and attach copies of the following:
    1. Your military spouse ID card
    2. Your Department of Defense Form 2058, State of Legal Residence Certificate
    3. Leave and Earnings Statement (LES) of service member, and
    4. Service member's current military orders assigning them to a post of duty in or near Massachusetts.
  3. Include the exempt wages that were subject to withholding on Form 1-NR/PY, Line 5.
  4. Subtract those wages on Schedule Y, Line 4.

You do not qualify for the Earned Income Tax Credit (EITC) since your spouse's compensation is not considered income for services performed in or from sources in Massachusetts.

Image credits:  State House (Shutterstock)
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