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 March 26, 2010


Military spouses may be able to claim
out-of-state residence for tax purposes

Military spouses in the Fort McCoy community who face paying state income taxes in two or more states because of partial year residences may be eligible for a break under a new federal law.

The new federal law allows a military servicemember’s spouse to keep a single tax domicile throughout the marriage, even if the spouse moves into another state, so long as the spouse moves into the other state to be with a servicemember who is in the state because of military orders.

The stated purpose of the law is to eliminate the burden of filing multiple part-year and nonresident income tax returns. The law allows wages (but not other income, such as income from the rental or sale of property located in Wisconsin or certain gambling winnings) to be sourced to a state other than the state in which the wages are earned.

Military eligible personnel in the Fort McCoy community, including those with affiliations of active-duty, retired and their Family members, can get more information about their state and federal income tax returns from the Fort McCoy Volunteer Income Tax Assistance (VITA) program.

For more information in the Fort McCoy community, call the VITA coordinator at 608-388-4117. Appointments for income tax return preparation and e-filing are available by calling 608-388-2165.

Who is eligible?
A spouse of a servicemember may be exempt from Wisconsin income tax on wages for services performed in Wisconsin if:
• The servicemember is present in Wisconsin in compliance with military orders,
• The spouse is in Wisconsin solely to be with the servicemember, and
• The spouse maintains a domicile (legal residence) in another state.
If the spouse meets the above requirements, the spouse is entitled to a refund of any taxes already paid to Wisconsin through withholding and estimated payments in 2009. The spouse will pay tax to the state of his/her domicile for 2009, if the state has an income tax.

How does the servicemember’s spouse claim a refund for Wisconsin income taxes withheld during 2009?
The servicemember’s spouse must file a 2009 Wisconsin Form 1NPR, which can be found at the Web site http://www.revenue.wi.gov/forms/2009/09i-050.pdf (income tax return for nonresidents and part-year residents of Wisconsin) to claim a refund of Wisconsin income taxes withheld. See page 10 http://www.revenue.wi.gov/forms/2009/09i-152.pdf of the 2009 Form 1NPR instructions. Fill in “15” in the special conditions box on page 1 of the Form 1NPR. If more than one special condition applies to the servicemember or spouse, put “9” in the box. Do not include Wisconsin wages on page 1, column B, line 1. Report Wisconsin withholding on page 3, line 68. Fill in the rest of the form.

What does the servicemember’s spouse need to do in order to not have Wisconsin income taxes withheld from wages during 2010?
To claim an exemption from Wisconsin withholding, the nonresident spouse of the servicemember must file Wisconsin Form W-221, Nonresident Military Spouse Withholding Exemption, with his/her employer. It is not necessary for this form to be filed annually. It remains in effect until revoked.

Must the servicemember and spouse reside together in Wisconsin?
• Yes. The servicemember and spouse must reside together in Wisconsin for the spouse to be eligible to be exempt from Wisconsin income tax on wages for services performed in Wisconsin. The servicemember and spouse may be domiciled in different states.

May the spouse claim a new state of domicile after moving into Wisconsin and be eligible for the exemption?
• No. The spouse must have established domicile in a state other than Wisconsin prior to moving to and residing in Wisconsin with the servicemember spouse in order to qualify for the exemption. The spouse must be able to show that he/she established domicile in another state before moving into Wisconsin and the spouse must maintain the earlier domicile while residing in Wisconsin with his/her service member spouse.

What income is eligible for the exemption?
• Wages for services performed in Wisconsin
• Payments from an owned business for services performed in Wisconsin
• Pass-through entity income unless the pass-through entity has income from Wisconsin sources
• Real estate rental income from property not located in Wisconsin
• Royalty income
• Investment income

What causes the spouse to no longer be eligible for the exemption?
• The servicemember leaves military service.
• The servicemember and spouse are divorced (separated).
• Physical separation due to duty changes where the spouse is allowed to follow but chooses not to.
• Spouse takes an action that clearly establishes Wisconsin as his/her state of domicile.
Examples: filing a court action, accepting in-state tuition, applying for certain state benefits, such as tax credits available only to Wisconsin domiciliaries.

How does the servicemember’s spouse notify the employer that he/she is no longer eligible for the exemption?
The servicemember’s spouse must notify the employer that he/she no longer is eligible for the exemption by completing Wisconsin Form 221 (http://www.revenue.wi.gov/forms/with/w-221.pdf , Nonresident Military Spouse Withholding Exemption), and submitting it to the employer. There is a check box on the form for the spouse to indicate that he/she no longer qualifies for the exemption. The nonresident spouse also will have to complete Wisconsin Form WT-4 (http://www.revenue.wi.gov/forms/with/w-204f.pdf Wisconsin Withholding Exemption Certificate), and submit it to the employer so that the correct amount of Wisconsin income tax can be withheld from wages.

(Submitted by the Wisconsin Department of Revenue. For more information about Wisconsin income tax returns visit the Web site http://www.revenue.wi.gov.)

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