Technical Information Release TIR 19-15: Taxation of the Income of Military Servicemembers and their Spouses
Table of Contents
The Military Spouses Residency Relief Act ( “MSRRA”), enacted on November 11, 2009, has been amended by P.L. 115-407, enacted December 31, 2018, effective for tax years beginning on or after January 1, 2018. The amendment adds a new provision to the MSRRA that permits the spouse of a servicemember (“military spouse”) in certain circumstances to elect on a year-by-year basis to use the servicemember’s state of residence for purposes of taxation. In all other respects the MSRRA is substantively unchanged.
Technical Information Release (“TIR”) 09-23 was issued to explain the Massachusetts implications of the MSRRA and its relationship to existing Massachusetts law that deems certain military compensation of nonresidents to be non-Massachusetts source income. This TIR 19-15 restates and revises TIR 09-23, addresses the provisions of P.L. 115-407, and is effective for taxable years beginning on or after January 1, 2018. For rules applicable to taxable years beginning before January 1, 2018, and for a general background discussion of the MSRRA, see TIR 09-23.
A. Massachusetts Residency and Taxation of Income
For Massachusetts income tax purposes, the taxation of an individual depends upon the taxpayer’s status as a resident or nonresident. Under G.L. c. 62, § 2, a Massachusetts resident is taxed, with certain limitations, on all income from whatever sources derived. In contrast, Massachusetts taxes a non-resident only on income derived from or connected to Massachusetts sources. See G.L. c. 62, § 5A.
Resident. Under G.L. c. 62, § 1(f), the term “resident” means
(1) any natural person domiciled in the commonwealth, or (2) any natural person who is not domiciled in the commonwealth but who maintains a permanent place of abode in the commonwealth and spends in the aggregate more than one hundred and eighty-three days of the taxable year in the commonwealth, including days spent partially in and partially out of the commonwealth. . . . For purposes of clause (2), a day spent in the commonwealth while on active duty in the armed forces of the United States shall not be counted as a day in the commonwealth.
For purposes of the 183-day rule, in determining whether a taxpayer is a Massachusetts resident, a day spent in Massachusetts while on active duty in the armed forces of the United States is not counted as a day in Massachusetts. Thus a servicemember that has spent more than 183 active-duty days in Massachusetts is not taxable as a Massachusetts resident under the 183-day rule. However, in a given year, if the number of days spent in Massachusetts that are not active-duty days exceeds 183, the servicemember will have satisfied the 183-day rule.
Non-resident. Under G.L. c. 62, § 1(f), the term “non-resident" means “any natural person who is not a resident or inhabitant.”
Domicile. Although a person may have residences in more than one state, a person can have only one domicile for tax purposes. Domicile is an individual's true, fixed and permanent home, determined by established common law principles and the facts and circumstances in each case.
B. Federal Law Applicable to Residency of Servicemembers and Military Spouses
By the terms of the Servicemembers Civil Relief Act (“SCRA”) a servicemember shall neither lose nor acquire a residence or domicile for purposes of taxation with respect to the person, personal property, or income of the servicemember by reason of being absent or present in any tax jurisdiction of the United States solely in compliance with military orders. This statute has been interpreted to mean that while a servicemember does not automatically lose domicile based on their presence in a state for military duty, the servicemember can by their actions or intentions affirmatively change domicile, including to the state where the servicemember resides while on military duty.
Also under the SCRA, as amended by the MSRRA, a military spouse shall neither lose nor acquire a residence or domicile for purposes of taxation with respect to the person, personal property, or income of the spouse by reason of being absent or present in any tax jurisdiction of the United States solely to be with the servicemember in compliance with the servicemember's military orders if the residence or domicile, as the case may be, is the same for the servicemember and the spouse. 50 USC § 4001(a)(2)(A).
C. Determination of Residency for Servicemembers and their Spouses
1. Determination of residency of servicemembers
a. Servicemember with Massachusetts domicile. A servicemember with Massachusetts domicile at the time of entering military service continues to be a Massachusetts domiciliary (and therefore, a Massachusetts resident) unless a new domicile is established while in military service. This applies even though the servicemember may be stationed outside of Massachusetts. See 50 USC § 4001(a)(1), G.L. c. 62, § 1(f).
b. Servicemember with non-Massachusetts domicile. A servicemember living in Massachusetts that is a non-Massachusetts domiciliary will not acquire a Massachusetts domicile or residence so long as the following conditions are met:
1. the servicemember submits Department of Defense Form 2058, “State of Legal Residence Certificate,” declaring “legal residence for purposes of withholding state income taxes from military pay” in a state other than Massachusetts; and
2. the servicemember is present in Massachusetts solely in compliance with military orders.
2. Determination of residency of military spouses
a. Military spouse with Massachusetts domicile, living in or out of state. A servicemember’s spouse with Massachusetts domicile does not lose his or her Massachusetts domicile (and therefore, residency) by reason of being absent from Massachusetts, if that absence is solely to be with the servicemember in compliance with the servicemember’s military orders. See 50 USC § 4001(a)(1), G.L. c. 62, § 1(f).
b. Military spouse with non-Massachusetts domicile living in Massachusetts. To claim status as a non-resident, a military spouse living in Massachusetts who does not make the election at 50 USC § 4001(a)(2)(B) (see section II.C.3.) to adopt the servicemember’s residence must establish that he or she is present in Massachusetts solely to be with the servicemember in compliance with the servicemember’s military orders and that the military spouse’s residence or domicile, as the case may be, is the same for the servicemember and the spouse.
3. Military Spouse Election
Federal law has added a new election that military spouses can use to declare residency, in addition to the historical rules at section II.C.2. Under the MSRRA, as amended, beginning January 1, 2018, the spouse of a servicemember may elect, in each tax year, pursuant to 50 USC § 4001(a)(2)(B), to have the same state of residence for tax purposes as the servicemember, even if the spouses are not legal residents of the same state.
Military spouses who were eligible to make this election as of January 1, 2018 are permitted to file amended returns for the 2018 tax year, using the procedures available on the Department of Revenue’s web site, https://www.mass.gov/info-details/amend-your-tax-return-or-request-an-abatement-of-tax.
D. Massachusetts Income Taxation of Servicemembers
1. Resident servicemember. A resident servicemember, as set forth in II.C.1, whose gross income is more than $8,000 is required to file a personal income tax return. G.L. c. 62C, § 6(a).
2. Non-resident servicemember stationed in Massachusetts. A non-resident servicemember is not subject to tax on the servicemember’s compensation for military service, but is subject to tax on Massachusetts source income earned other than from military sources. See 50 USC § 4001(b), G.L. c. 62, § 5A(c). Except for compensation for military service, all types of income, including investment income, derived from or effectively connected with the carrying on of a trade or business within Massachusetts are Massachusetts source income. See 830 CMR 62.5A.1(1).
E. Massachusetts Income Taxation of Military Spouses
1. Resident Military Spouse. A resident military spouse, as set forth in II.C.2, whose gross income is more than $8,000 is required to file a personal income tax return. G.L. c. 62C, § 6(a). If such a military spouse resides outside of Massachusetts solely to be with his or her servicemember spouse in compliance with military orders and does not make the election at 50 USC § 4001(a)(2)(B) to adopt the servicemember’s residence, he or she is subject to Massachusetts income tax on income earned in that other state.
2. Non-resident Military Spouse. A non-resident military spouse in Massachusetts is not subject to tax on certain income if the military spouse is in Massachusetts solely to be with the servicemember who is serving in compliance with military orders. 50 USC § 4001(c), G.L. c. 62, § 5A. To the extent income is attributable to the non-resident spouse’s performance of services, it is exempt. Otherwise, all types of income, including investment income, derived from or effectively connected with the carrying on of a trade or business within Massachusetts are Massachusetts source income. See 830 CMR 62.5A.1(1).
Massachusetts source income that is unrelated to the services performed by the non-resident military spouse does not qualify for the exemption. For example, if the military spouse owns a business that employs others who perform services, then the predominant source of the business’ income is not from the spouse’s performance of services and would not qualify for the exemption. Similarly, items of gross income received by a non-resident military spouse that are derived from or effectively connected with the participation in any lottery or wagering transaction in Massachusetts, or the ownership of any interest in real or tangible personal property located in Massachusetts, remain subject to taxation.
III. Massachusetts Return Filing Requirements
A. Wage Withholding
Chapter 62B requires every employer making payment to employees of wages subject to Massachusetts income tax under G.L. c. 62 to deduct and withhold taxes upon such wages. An employer is liable for failing to withhold the proper Massachusetts tax on a military spouse unless the employer has a properly completed Massachusetts Form M-4-MS, Annual Withholding Tax Exemption Certificate for Military Spouse, from that employee.
A non-resident servicemember’s qualifying spouse whose wages are exempt from Massachusetts personal income tax under the MSRRA, by the spouse’s election or otherwise, may claim an exemption from Massachusetts withholding tax. A military spouse who qualifies for Massachusetts wage exemption under the MSRRA must complete Form M-4-MS and provide the employer with the following documentation:
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 servicemember; and
4. Servicemember’s current military orders assigning such servicemember to a post of duty in Massachusetts.
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 lose eligibility include:
1. Servicemember leaves the service;
3. Voluntary physical separation due to duty changes – the servicemember’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
4. Spouse establishes Massachusetts as his or her state of domicile.
B. Personal Income Tax
The servicemember and spouse must file the appropriate resident (Form 1) and/or non-resident (Form 1 NR/PY) returns. No other affirmative statement of the servicemember or the servicemember’s spouse’s residence or domicile is required with the filing, and the filing itself will be deemed an election under 50 USC § 4001(a)(2)(B). Upon review, the Department reserves the right to request proper verification of residence and/or domicile, such as those forms of documentation cited in section III.A of this TIR.
/s/ Geoffrey E. Snyder
Geoffrey E. Snyder
Commissioner of Revenue
April 7, 2020