The federal Military Spouses Residency Relief Act (MSRRA) allows a military servicemember's spouse to keep a tax domicile throughout the marriage, even if the spouse moves into another state, so long as the spouse moves into the state to be with a servicemember who is in the state because of military orders.
The effective date is taxable years that begin on and after January 1, 2009.
Under the MSRRA, income from services you perform may be excluded from Iowa income tax if:
- your spouse is a member of the armed forces;
- your spouse is present in Iowa in compliance with military orders;
- you are present in Iowa solely to be with your spouse; and
- you and your spouse maintain your domicile in a state other than Iowa.
If you qualify for the MSRRA, income for services you perform while present in Iowa is sourced to your domicile state and not Iowa. Income for services you perform may include wages, salaries, and tips, as well as income from a business reported on a Schedule C. Other income you receive, such as interest and rental income, may be sourced to Iowa to the same extent it would be sourced to Iowa for any other nonresident.
This exclusion from state income tax is broader than the exclusion for service members themselves. Military servicemembers are also entitled to keep their residence under the Servicemembers Civil Relief Act for purposes of determining which state may tax their military pay; however, servicemembers may owe tax in the state where they are stationed if they have non-military compensation or other income from sources within that state.
So while a state where a military servicemember is stationed may still continue to tax non-military compensation earned by a servicemember in the state, it will not be able to tax the compensation earned by the nonmilitary spouse if that spouse claims another state as their tax residence.
The IA W-4 includes information related to this federal law. If you claim this exclusion, check the appropriate box on the IA W-4, enter the state other than Iowa you are claiming as your state of domicile, and attach a copy of your spousal military identification card to the IA W-4 provided to your employer.
Filing Iowa Income Tax Returns
Spouses who qualify to claim this exclusion on their Iowa Income Tax Return should report all-source income on the IA 1040, but show no Iowa wages, salaries, tips, or Schedule C income on the IA 126. Enter the amount of credit from line 33, IA 126, on line 48, IA 1040.
Iowa income tax withheld should be entered on line 63 of the IA 1040; then complete the remainder of the IA 1040 to determine the amount of any refund that may be due.