Military Spouse Tax Filing Challenges: Answers to FAQs

Happy US army soldier with his military spouse on street

The unique demands of military jobs pose challenges for military spouses, especially with the frequent relocations they face.  These challenges include adapting to new homes, finding employment, and, of course, managing taxes during tax season.

When you’re constantly changing your address, it can be difficult to know where and how to file your taxes.

Around 700,000 active duty service members have entered into marriage. This means that a lot of people may be having the same tax problem. Which is why addressing this issue is important.  

In this guide, we’ll discuss the most frequently asked questions about filing taxes as a military spouse.

Q: Which filing status should I, as a military spouse, choose?

The choice of filing status as a military spouse depends on your specific circumstances. Generally, you have two options: filing jointly with your spouse or filing separately. You have to consider factors like income, deductions, and credits to determine the status that best suits your financial situation.

We often recommend filing jointly with your spouse if one spouse is the sole earner. This common occurrence affects military spouses, with a 21% unemployment rate recorded in 2023. If you jointly file with your spouse, you can benefit from higher standard deductions. You are also eligible for various tax credits, including the Earned Income Tax Credit.

However, there are instances where filing separately with your military partner is more beneficial. If your spouse risks losing deductions or credits when filing jointly, choose to file separately.

Additionally, if there are concerns about your spouse’s tax liabilities, filing separately can offer protection.

Q: How can I establish a resident state for tax purposes as a military spouse?

Under the Military Spouses Residency Relief Act, you may claim your spouse’s State of Legal Residency (SLR) or domicile when filing your taxes.  State of Legal Residency refers to the state that an active-duty service member designates as their permanent legal residence for tax purposes. It is where a service member has a true, fixed, and permanent home. A place they intend to return to even if currently residing elsewhere temporarily as a result of military orders.

No, the Military Spouse Relief Act provides an exemption for military spouses from filing state taxes under specific circumstances. The act considers the spouse a non-resident of a state and, therefore, exempts you from that state’s taxation if you meet the following conditions. Firstly, if the service member is present in that state due to military orders. Secondly, if you, as the spouse, are in that state solely to accompany your service member’s spouse. Lastly, if you maintain a domicile in another state.

For example, suppose your service member spouse receives orders to station in Texas. If you relocate to Texas solely to accompany them, the act ensures that you maintain your non-resident status for state tax purposes in Texas. Consequently, Texas won’t tax your income if you continue to maintain your domicile in another state.

Q: How does reassigning my spouse overseas impact our taxes?

If your active service member spouse moved overseas in compliance with military orders and you relocate with him, you may be eligible for the Foreign Earned Income Exclusion (FEIE). This tax benefit allows you to exclude a specific amount of your foreign-earned income from being taxed in the US, thereby reducing your overall tax liability.

You should also be aware of Foreign Bank Account Reporting (FBAR) requirements. If you and your service member spouse have financial accounts, such as offshore bank accounts, investments, or assets, you may need to report these accounts to the U.S. Department of the Treasury if the aggregate value of all accounts exceeds $10,000. Note that non-compliance with FBAR requirements can lead to severe penalties.

Q: As a military spouse, do my family and I qualify for specific tax breaks?

Yes, the IRS gives tax breaks that help not just service members but their families too. For example, survivors of deceased Armed Forces members get a non-taxable death gratuity of $100,000. If service members or their spouses are on qualified extended duty, they can also benefit from suspending the 5-year ownership and use test when selling a home.

There’s also the Homeowners Assistance Program (HAP), which gives tax-exempt payments to help with housing value losses due to base closures. This includes those with a 30% or greater disability, wounded civilian homeowners, and surviving spouses. And for military members serving in combat zones, there is an automatic extension to file and pay their US taxes.

If you’re a spouse of a military contractor and want to discover how you both can save on taxes while keeping the IRS and state tax authorities happy, click the link to access our guide.

All About Randall Brody
Randall is the Founder of Tax Samaritan, a boutique firm specializing in the preparation of taxes and the resolution of tax problems for Americans living abroad, as well as the other unique tax issues that apply to taxpayers. Here, they help taxpayers save money on their tax returns.

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