The North Carolina Department of Revenue recently announced some rules in line with the Servicemembers Civil Relief Act (SCRA). This federal legislation permits military spouses to choose the same tax domicile as their spouse serving in the Armed Forces. The spouse isn’t required to acquire or lose their tax domicile in the military member’s current state of residence just so the couple can comply with the service member’s military orders.
The income of a military spouse whose legal tax domicile is in another state isn’t subjected to North Carolina income tax if they meet the following criteria:
- The service member resides in North Carolina just in order to comply with their military orders.
- The spouse moved to North Carolina with the sole purpose of living with the service member.
- The military spouse has the same tax domicile as the service member.
All three conditions must be met for the exemption to be allowed. This particular tax benefit is in line with the Veterans Benefits and Transition Act of 2018, which allowed military spouses to choose the same address as the service member they’re married to for state tax purposes beginning January 1, 2018. The couple’s tax domicile will be determined on a case-to-case basis.
In line with this, just because a service member legally resides in North Carolina doesn’t mean the North Carolina Department of Revenue automatically assumes their spouse is a North Carolina resident because of their marital status. The military spouse’s residency is determined on an individual basis.
If the military spouse filed a joint federal return and neither the service member nor the spouse is a legal resident in the state without state taxable income, they’re still welcome to file a joint return. Once a joint return is filed, they can’t choose to prepare separate returns for that particular year after the return’s due date.
As an alternative, the military spouse can choose to file their state return separately. Suppose they decide to file a state return in North Carolina separately. In that case, they might either accomplish a federal return as married, stipulating only their deductions, income, and exemptions, or a schedule reflecting the computation of their separate deductions, income, and exemptions. They must also attach this form to their North Carolina return. A copy of the joint federal return must also be included unless there’s a North Carolina address in the federal return.
The SCRA provides both service members and their spouses with legal and financial protections, but it’s vital that they provide evidence of military service. This is where SCRACVS can be of service. Open an account today and verify the active duty status to maximize your tax domicile rights in North Carolina and other states.