Military Moves and State Taxes: The SCRA and MSRRA
Active-duty military members receive special state tax protections under the Servicemembers Civil Relief Act (SCRA) and the Military Spouses Residency Relief Act (MSRRA). Under these laws, your military income is taxed only by your state of legal residence (domicile), regardless of where you are stationed. Military spouses can also elect to use the servicemember's state of domicile.
These protections matter because the military moves servicemembers frequently across state lines. Without federal protection, a servicemember stationed in California for three years could become subject to California's income tax on their military pay -- an outcome Congress specifically prevented through the SCRA. This article explains how the law works, what steps you need to take, and what the rules do not cover.
SCRA basics: domicile state taxation
The Servicemembers Civil Relief Act (50 U.S.C. Chapter 50) provides that a servicemember's military compensation and personal property are not subject to income tax by any state other than the servicemember's state of legal domicile. This protection applies as long as the servicemember is present in the state solely due to military orders.
The key concept is domicile -- your permanent legal home, the place you intend to return to when your military service ends. Domicile is not the same as where you are currently stationed. You maintain the same state of domicile through every PCS move unless you affirmatively take steps to change it.
Under the SCRA, if you are domiciled in Florida (no income tax) and stationed in California, California cannot impose its income tax on your military pay. You owe no state income tax on that pay -- not to California and not to Florida (which has none). Your domicile state is the only state with the legal authority to tax your military compensation.
Important limitation: the SCRA protects military compensation only. If you earn income from a civilian part-time job, freelance work, or a business in your duty station state, that state can tax that non-military income. The protection is specific to pay received for military service.
MSRRA: spouse protections
The Military Spouses Residency Relief Act (MSRRA), enacted in 2009 and expanded in 2018, extends similar protections to military spouses. Before the MSRRA, a military spouse who moved with a servicemember to a new duty station state would automatically become subject to that state's income tax. The MSRRA changed this.
Under the MSRRA, a military spouse can elect to use the servicemember's state of legal domicile as their own state of domicile for state income tax, voting, and vehicle registration purposes. For this election to apply:
- The servicemember must be in the state pursuant to military orders.
- The spouse must be in the state solely to be with the servicemember (not for independent employment that itself caused the move).
- The spouse and servicemember must share the same state of domicile.
The 2018 expansion (Veterans Benefits and Transition Act) clarified that spouses can make this election regardless of whether they entered the state before or after the servicemember, and it extended the protection to professional licensing -- meaning a military spouse licensed in their home state can have that license recognized in the duty station state.
Practically, the MSRRA means that if a military couple is domiciled in Texas and stationed in New York, the spouse can elect to remain a Texas domiciliary for state income tax purposes -- and since Texas has no income tax, the spouse owes no state income tax to either state on their earned income. If the spouse chooses not to make the election, they may become subject to New York's income tax rules.
How to establish and maintain domicile
States look at a combination of facts to determine where you are domiciled. No single action is legally conclusive, but the following steps together build a strong domicile claim in a given state:
- Driver's license: Obtain a driver's license issued by your domicile state and keep it current.
- Voter registration: Register to vote in your domicile state. Federal law (the Uniformed and Overseas Citizens Absentee Voting Act) protects servicemembers' right to vote by absentee ballot in their domicile state.
- Vehicle registration: Register your personal vehicle in your domicile state.
- State tax return: File a state income tax return in your domicile state (if it has an income tax) and not in your duty station state.
- Bank and financial accounts: List your domicile state address on bank accounts and financial accounts.
- Declaration of domicile: Some states allow or require a formal Declaration of Domicile form. File one if your domicile state offers it.
- Will and estate documents: Execute a will or trust governed by your domicile state's law.
Maintenance of domicile requires keeping these ties active even while you are stationed elsewhere. Renew your driver's license by mail or online through your domicile state's DMV. Vote by absentee ballot in every election. Avoid taking actions that signal you have abandoned your domicile state -- such as registering your vehicle in your duty station state, which some states interpret as an intent to establish residency.
No-income-tax states for military domicile
Many servicemembers choose to establish domicile in a state with no income tax when they have the opportunity during a PCS move. The benefit: your military pay is protected from the duty station state's income tax by the SCRA, and your domicile state has no income tax either, so the net result is zero state income tax on military compensation.
The following states currently have no broad-based personal income tax:
| State | State Hub |
|---|---|
| Alaska | Alaska tax information |
| Florida | Florida tax information |
| Nevada | Nevada tax information |
| New Hampshire | New Hampshire tax information |
| South Dakota | South Dakota tax information |
| Tennessee | Tennessee tax information |
| Texas | Texas tax information |
| Washington | Washington tax information |
| Wyoming | Wyoming tax information |
Changing domicile requires genuine intent to make that state your permanent home, not just a tax-motivated paper change. A domicile established purely for tax avoidance without genuine ties to the state can be challenged. That said, servicemembers who genuinely intend to retire to or return to a no-income-tax state have a legitimate basis to establish domicile there.
Combat zone exclusions: federal, not always state
The combat zone pay exclusion under Section 112 of the Internal Revenue Code allows active-duty servicemembers to exclude certain pay from federal income tax during months they served in a designated combat zone. This exclusion is a federal benefit only.
Whether your domicile state also excludes combat zone pay from state income tax depends on that state's specific law. Some states conform to the federal exclusion automatically, some have their own exclusion that may differ, and some tax combat zone pay at the state level just as they tax regular military pay.
If you are domiciled in a state with no income tax, the state conformity question is moot -- there is no state income tax to worry about. If you are domiciled in a state with an income tax, check with that state's department of revenue or a military tax specialist to confirm whether your combat zone pay is excluded at the state level.
Military OneSource provides free tax preparation assistance through the Military OneSource MilTax service, which is designed to handle these military-specific situations correctly.
PCS moves and part-year filing
A Permanent Change of Station (PCS) move does not automatically change your state of domicile. Your domicile remains where you established it unless you affirmatively change it. This means:
- You continue filing in your domicile state throughout the PCS move, even for the year of the move.
- The duty station state you move to cannot tax your military pay under the SCRA, regardless of how long you are stationed there.
- If you earn non-military income in the new duty station state, you may owe that state income tax on that non-military income and may need to file a nonresident return there.
Part-year returns become necessary when you actually change your domicile mid-year -- for example, if you change your state of legal domicile during a PCS move. In that case, you file a part-year resident return in the old domicile state for the portion of the year you were domiciled there, and a part-year resident return (or full-year, depending on the timing) in the new domicile state.
If you are separating from the military and returning to your domicile state, the year of separation may require careful attention: your military pay is covered by SCRA protections through your separation date, and civilian income earned after separation is subject to normal state tax rules.
For free tax filing assistance specifically designed for military members, visit Military OneSource MilTax. For IRS guidance specific to armed forces members, see IRS Publication 3: Armed Forces' Tax Guide.