The rules governing where — and, in many cases, if — military members and their spouses pay state income taxes are changing thanks to a new law signed early this year.
The Veterans Auto and Education Improvement Act of 2022, which became law Jan. 5, makes amendments to the tax residency rules in the Servicemembers Civil Relief Act, a law that gives financial and legal protections to troops and their families.
Tax experts I consulted agree that how and when the new law is implemented by both states and the IRS is unclear. They even declined to speculate on the record about what the impact of the law might be.
But according to the text of the law itself, one thing is clear: Changes are here, and they could mean thousands of dollars more, or less, in taxes for military families.
The new law opens the door to service members and their spouses to pick the state in which they pay income taxes from three options: the legal residence or domicile of the service member; the legal residence or domicile of the spouse; or the current permanent duty station of the service member. It also expands to spouses a residency protection already offered to service members that allows them to remain tied to a former legal residency, even if they no longer physically live there.
The change could effectively mean that if the service member and spouse are ever stationed in a state that has low income tax rates or no state income tax they can…
