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December 03, 2020

Residence for Tax Purposes

My State of Legal Residence is Maryland, but I am currently stationed in Ohio. When I pay income taxes, do I pay state income taxes to Maryland, Ohio, or both?

Your military pay is subject to taxation by Maryland, because Maryland is your State of Legal Residence.  If you earned additional income from a part-time job in Ohio, you may owe income tax to Ohio – but only on your part-time income.

The general rule is that your military pay is subject to taxation ONLY by your State of Legal Residence. Income from a second job is subject to taxation by the state where you are live and work – which for most servicemembers will be the state where they are stationed. Also, any property or equipment you may have for a business that you operate can be taxed by the state where you are live and work.

Note that you are obligated to follow the tax filing and payment rules of your state of Legal Residence. Even if your State of Legal Residence imposes no income tax on military pay, you may still need to file a return in that state. Failure to properly file a return, even when no taxes are due, could create legal doubt as to which state has taxing authority over your military pay. Be sure to follow the rules, and get help from a military legal assistance attorney if you have any questions.

The SCRA now extends protections regarding state income tax to spouses of servicemembers. However, you and your spouse are strongly encouraged to seek counsel from a military legal assistance attorney before your spouse seeks to exempt income earned on the local economy from local state income taxes. If not done properly, the local state may seek to assess state income taxes on both the spouse’s income AND the servicemember’s MILITARY income.

I am going to be deployed to a combat zone on March 15. I have not yet filed my federal income tax return. Can I get an extension?

Yes. You are entitled to an extension to file your federal return that extends for the duration of your deployment plus 180 days. Check with your state to find out if you may receive a similar extension for your state tax return.

If you are stationed overseas in a noncombat zone, you are entitled to a two-month extension to file your federal return, which may be extended further upon request. If you are entitled to a tax refund, you should file your return if at all possible. Otherwise, you will be loaning money to the government.

If you have difficulty paying taxes due with your tax return, you may be entitled to have your taxes deferred under the SCRA, with no penalties or fees accruing. You do, however, have to show that your military service has a material effect on your ability to pay your taxes. In this, and any other situation where you need an extension or deferral of your tax filing, you should first talk with a military legal assistance attorney.