Some Tax Filing Advice for Military Personnel

Edmond Life & Leisure - Jen Lindstrom

Jun 7, 2021

Jen Lindstrom provides tax filing advice for Military members.

For the active duty service member, moving comes with the job. However, moving states and establishing new legal residencies can turn filing state taxes into a confusing and stressful mess.

I’m active duty stationed at Tinker AFB. Where do I file my state taxes?
The Service members Civil Relief Act (SCRA), enacted in 2003, provides certain financial benefits and protections to the service member. One of which is the ability to maintain legal state residency throughout their military career. Changing duty stations no longer means changing legal residency. The SCRA also states that the service member’s military income is taxable only to the resident state. If your resident state is not Oklahoma, you do not pay Oklahoma state tax on your military income.

What about the military member’s spouse?
In an effort to further relieve the financial burden on military families, the Military Spouses Residency Relief Act (MSRRA) was passed in 2009 amending the SCRA. Among the amendments, the MSRRA allows a military spouse to maintain their state of legal residence if they have the same original residence as the service member. This was further amended in 2018 with the Veterans Benefits and Transition Act (VBTA). The VTBA allows service member’s spouses to claim the same state of legal residence as the service member even if they have never lived there. As long as the military member and their spouse maintain the same resident state, neither have to establish a new residency with each new duty station. The MSRRA also expanded the provision for income from services provided by the spouse to be taxed by the resident state only. This simplifies state tax filings for the service member and their spouse when they both have the same state of legal residence.

I live in Oklahoma, but my service member spouse and I maintain our legal residence in Arkansas. Do we
file an Oklahoma tax return?
Income from services performed by the service member’s spouse in Oklahoma is not taxable to Oklahoma. In short, if you are a spouse receiving a W-2, the wages are only taxable to Arkansas. If the W-2 does not report Oklahoma withholding and this is your only income, there is no filing requirement in Oklahoma. If the W-2 does report Oklahoma withholding, form 511-NR, Oklahoma’s nonresident income tax return, must be filed to request a refund of the taxes held. Note that this does not apply to a service member’s civilian earned income.

I have a job at a local retail store and they are withholding Oklahoma state taxes. Is there anything I can do?
Yes. Form OW-9-MSE is a form that the military spouse can file with their employer to exempt them from Oklahoma withholding tax. The employer may also request that you update the OK W-4 and file as exempt which will allow the employer to forgo Oklahoma withholding.

Does that mean that all income earned in Oklahoma is nontaxable to Oklahoma?
No. The only income protected by the MSRRA is “income for services provided” by the service member’s spouse (50 U.S.C 571(a)(2)). Most typically this is income reported on a W-2, but can also include personal service business income such as painters and landscapers. If the spouse runs a home business that makes, buys, or sells goods, this income is taxable to Oklahoma and may also be reportable to the resident state. Rental income earned by property located in Oklahoma is taxable to Oklahoma. Although the Service members Civil Relief Act, amended by the Military Spouses Residency Relief Act and the Veterans Benefits and Transition Act, has provided some relief of the headache of filing state taxes, it is important to contact your local tax professional to ensure the income earned is being reported correctly.

Jen Lindstrom, CPA, is a tax supervisor at Arledge and Associates, PC, an Edmond-based accounting firm.
Arledge and Associates, PC is a recognized leader in the accounting industry offering practical solutions in the areas of tax planning, auditing, consulting, accounting advisory services and client accounting. Through its Gateway Executive Solutions division, the firm offers outsourced CFO, controller and cloud based accounting solutions.

This article contains general information only and does not constitute tax advice or any other professional
services. Before making any decisions or taking any action that might affect your income taxes, you should consult a professional tax advisor. This article is not intended for and cannot be used to avoid future penalties that may be imposed by the Internal Revenue Service.