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.
