Military Spouses Residency Relief Act
The Military Spouses Residency Relief Act (MSRRA) was signed into law on November 11, 2009. For taxable years beginning on or after January 1, 2009, a servicemember’s spouse is considered a nonresident for tax purposes if the servicemember and spouse have the same legal residence or domicile outside of California and the spouse is in California solely to be with the servicemember who is serving in compliance with military orders. In addition, under the MSRRA, a qualified spouse’s income for services performed in California is not considered to be from sources within this state if the spouse is not a California legal resident or domiciliary because the spouse is in California solely to be with the servicemember serving in compliance with military orders and both have the same out-of-state legal residence or domicile.
What is a Resident?
If the servicemember and spouse have the same state of legal residence or domicile, the MSRRA provides:
- A spouse shall not be deemed to have lost a residence or domicile in any state solely by reason of being absent to be with the servicemember serving in compliance with military orders.
- A spouse shall not be deemed to have acquired a residence or domicile in any other state solely by reason of being there to be with the servicemember serving in compliance with military orders.
Legal Residence or Domicile is defined as the one place:
- Where you maintain a true, fixed, and permanent home.
- To which you intend to return whenever you are absent.
Note: California may require spouses of servicemembers to provide proof that they meet the criteria for California personal income tax exemption as set forth in the MSRRA.
Income Subject to California Tax
In general, California taxes all of the income you receive while you are a resident of California and all of the income you receive from California sources while you are a nonresident.
However, a spouse of a servicemember is not taxed by California on income received from services performed in California if the spouse is not a California domiciliary and meets the MSRRA requirements above. All other income of nonresident spouses from California sources is subject to California tax.
California Source Income - For the Servicemember’s Spouse Who Meets the MSRRA Requirements
California source income subject to California income tax includes:
- Income from real or tangible personal property located in California.
- Income from a trade or business located in California other than income for services performed by the servicemember’s spouse.
Tax Computation for Part-Year Residents or Nonresidents
To determine the amounts of "California taxable income" and "total taxable income" described in FTB 1032, section G, Tax Computation for Part-Year Residents or Nonresidents, the income for services performed in California by a servicemember’s spouse meeting the MSRRA requirements is not included in California taxable income, Schedule CA (540NR), Column E. However, this income is included in total taxable income, Schedule CA (540NR), Column D, to arrive at the applicable California tax rate.