It’s that time of year, again! Tax Season! Whether you’re a new military spouse or a seasoned spouse, it never hurts to brush up tax tips and money saving advice. From being employed in one state and claiming residency in another or freelancing on the side, there seem to be more questions than answers when it comes to taxes.
Who better to ask than a fellow military spouse who understands the lifestyle and finances! We asked Linda Nemeth, an Air Force spouse (and who just happens to be a licensed Personal Banker and financial counselor) a few inside tips for military spouses about taxes and finances.
Military Spouse: Give us the top three “inside” tax tips for military spouses?
Nemeth: Yes!
1. Become familiar with the Military Spouses Residency Relief Act and what it means. A military spouse is exempt from paying state income taxes when he or she:
a. Lives in a state that is different from his or her permanent residence;
b. Lives in the state solely in order to live with the servicemember; and,
c. The servicemember is living in the state in order to satisfy military orders.
d. Some states may require both the spouse and servicemember be residents of the same state.
What does this mean for our taxes? If the above requirements are met, then the spouse is entitled to a refund of any taxes already paid to such state that is paid through withholdings. However, the spouse will have to pay tax to the state of residence, assuming that state has an income tax. For example, if you live and work in Ohio, but are a Florida resident you will receive a refund of any withholdings collected for Ohio state taxes and not pay Florida state tax since Florida does not collect state taxes.
Some employers will elect not to withhold any state holdings if you inform them that you are a military spouse. If you are in the workforce or thinking of joining the workforce inquire with Human Resources about amending your W-4 to either not have state taxes withheld from your paycheck (if you are a resident of a state that doesn’t collect state tax) or have state taxes withheld for the state you are a resident of.
2. Open a SPOUSAL IRA! If you are a “Domestic Engineer”, i.e. non-employed spouse it’s important to recognize the economic role you play in the family. In order to qualify for a Spousal IRA the spouse has to either have no earned (wages, salaries, tips, etc.) income or not enough income and pass the earned income test to qualify for a Spousal IRA. The maximum contribution limits for 2016 follow the traditional and Roth IRA guidelines of $5,500. For taxpayers age 50 and over, he or she may have a special catch-up period that allows them to add another $1,000 per year. The entire amount contributed to the Spouse IRA may be tax deductible, thus lowering your taxable family’s taxable income.
Planning for the future begins now.
3.You don’t have to do your taxes by yourself. Most installations offer free tax counseling. Find out where the service is located. There are also various tax businesses that offer deep discounts for military members who use their services. Do your research and find the best resources that suit your tax situation. Even if you do enjoy doing your own taxes, don’t be afraid to get a second opinion. You may have over looked something that the “professionals” know that you don’t. Turbo Tax is an awesome way to have you hand-held through the tax process!