Military with California W-2 living in different state

I have a new client who is military but his wife is not military. His W-2 shows California income but he has been stationed and living in South Carolina for the entire year of 2019. His wife is non military and she received a South Carolina W-2. Since he received a California W-2, do I have to do a CA non-resident return?... If so, will they be taxed for California even though he didn't live or work there at all? Is there a way to show all income as South Carolina income and no income for California?

Thank you for your help.

I think you need to find out why his W-2 shows CA source income.

A corrected W-2 may or may not be in order.

From what I have read, the military taxes them based on the state that they enlist and he did in fact enlist in California in 2018. I have to assume that it is up to the military personnel themselves to contact the human resource department of the military to let them know that they wish to be taxed in the particular state they are living in. I don't know if there is another way around this and I'm hoping that somebody might know a trick (a legal trick that is). Thanks

Military pay for a CA resident on PCS outside of CA is not considered CA source income. If tax was w/h by CA, file to get a refund, otherwise no filing required if no other CA source income. As I recall, the military exclusion is on the NR return.

The SC spouse would have SC source income. She can choose to be considered a resident for tax purposes of the same state as her husband but in your case there would be no advantage. Works best if hubby is a resident of a no tax state.

[edit] See my post #12

Military pay for a CA resident on PCS outside of CA is not considered CA source income. If tax was w/h by CA, file to get a refund, otherwise no filing required if no other CA source income.

Agree with Howard.

https://ttlc.intuit.com/community/milit ... e/00/25559

https://www.ftb.ca.gov/file/personal/fi ... itary.html

https://www.ftb.ca.gov/forms/2018/18_1032.pdf

Howards and ManVsTax... Thank you so much... I guess I am having a really hard time figuring out Pro-Series and filling in the appropriate fields in the appropriate forms. I have tried to enter in the CA FORM 540NR form that they are domiciled in SC and that they are not CA residents, but I still come up with tax due. I will keep plugging away... Maybe somebody knows which magic field will fix this for me. Again, thank you so much!

I actually was able to simply go to the Schedule CA(540NR) and change the amount shown as California income to $0 which appears to have fixed the issue. As expected the South Carolina income tax amount increased by the amount the California tax decreased. Hopefully California doesn't end up auditing this, but if they do, I think they will see the spirit of what was done and I should prevail... (I hope). If anybody sees my approach as wrong, let me know. Thanks all!

The military pay is not subject to SC tax.
Your CA software should have a place to designate the W-2 as military pay. Be sure to answer all the questions on the nonresident schedule correctly.

Was there any CA income tax withheld per the W-2?

SRJCPA... Thank you very much... I've been entering fields and pushing buttons with no change in the results. I have read that in south Carolina, residents do pay tax on military pay but non-residents do not. I will keep plugging away. I do appreciate your help with this. AND.... ManvsTax ... there was no income tax withheld on the CA w-2..

ManvsTax ... there was no income tax withheld on the CA w-2..

Are you sure the client has a 540NR filing obligation? I would take a breather and then re-examine posts 4 and 5...

FTB Pub 1032:

The nonmilitary spouse of a military servicemember who is domiciled in California, but leaves the state with the
military spouse on PCS orders outside California, becomes a nonresident upon leaving California. The MSRRA does
not alter this result. All income received or earned while a California resident is subject to tax. While a nonresident,
only income from California sources is subject to tax.

So, since the Military Spouse Residency Relief Act allows the spouse to elect the same state of residency as the servicemember, while in CA she is a CA resident who, like the servicemember, becomes a CA nonresident while residing with her husband in SC.

No CA return.

Also, the MSRRA as adopted by SC in SC Revenue Ruling #10-5:

income from services performed by a
spouse of a servicemember is not taxable to the state where the services are performed if the
spouse is a nonresident who is in the state solely to be with the servicemember serving in
compliance with military orders. Prior to this Act, regardless of the state of domicile, the spouse,
like any other worker, would be taxed on wages and other service income in South Carolina if
the income was earned in South Carolina.

Additionally, the Veteran's Benefits and Transitions Act of 2018 allows the spouse to claim the servicemember's state of residency even if she has never stepped foot in the state.

Bottom line? Do not file a CA return. File a SC return as a nonresident to get a refund of tax paid on spouse's wages. Neither the servicemember nor his spouse will pay state taxes on their W-2 wage income.

Are you saying the nonmilitary spouse's income is not subject to tax in CA or SC?

Exactly.

Wow!!!.. Thanks HowardS... Let me see if i can get that to work...

Regardless of the state, Federal tax still applies.. Right?

I sincerely appreciate your help.

Federal tax still applies.

Are you saying the nonmilitary spouse's income is not subject to tax in CA or SC?

Well, technically, it is subject to CA tax - but CA declines to tax it. Other states in CA's position vis-a-vis a military spouse do not decline to tax.

I do >200 military returns per year. Working a return today where the Servicemember is from IA. His spouse is filing in IA, but had Virginia taxes withheld all year. We need to file in Virginia to get her $2200 back from Virginia and give $700 of it to IA.

HowardS or Preppie - any advice on where states draw the line regarding if the military spouse has established domicile? For example, in the OP, if the non-military spouse had registered to vote in South Carolina, registered her car in SC, and applied for the homestead exemption on their house in SC would SC argue that she has established domicile in SC and is therefore subject to SC taxes?

IMHO the states have no say. They must provide at least the minimum benefits under the MSRRA and may provide more. Note that I'm referring to taxation. MSRRA doesn't prevent a spouse from complying with state laws regarding voting and driver's licensing.