Rights Under the SCRA Regarding Taxes

By 1st Lt. Cory Redditt, Fort Bliss Legal Assistance Office

The Servicemembers Civil Relief Act provides protections for members of all of the uniformed services on active-duty orders and their dependents. The SCRA recognizes that service members and their spouses are particularly vulnerable in some legal areas, given the nature of the service member’s employment, and seeks to provide them with protections to even the playing field. With tax season quickly approaching, a look at some of the protections afforded to service members regarding taxes may be of use.

Choice of Residency:

One particularly important protection offered by the SCRA is the ability for service members and their spouses to choose to retain their residence for tax purposes regardless of where they are currently located. The presumption is that a service member and their spouse retain their state of legal residence and cannot lose or acquire residency until they choose to do so. The ability of service members and their spouses to choose their state of residence can be very advantageous when it comes to their tax liabilities because states have very different methods of taxing income, personal property, and inheritance among some of the more common types of taxes imposed by states.

In addition to the protections provided to the service member, the spouse is also afforded the same protections and may choose to establish residency in a state different than their service member’s state of residency. This is a recent addition to the SCRA. Previously, under the Military Spouses Residence Relief Act of 2009, the spouse was not protected in being able to establish a legal residence that differed from the legal residence of the service member unless that spouse was physically present in that state. Essentially, this allows the service member and their spouse to independently choose their state of residence for tax purposes, assuming that they both have met the general requirements to establish residency in that state in the first place and taken the steps to do so.

Example 1: A service member and their spouse reside in Alabama and establish residency there. The service member receives active-duty orders to Fort Bliss, Texas. The service member and their spouse have the ability to decide whether to keep their Alabama residency or they may establish residency in Texas.

Example 2: The same service member from above decides to establish Texas residency instead of keeping his Alabama residency. Their spouse alternatively has the option to maintain their Alabama residency while still being able to live and work in Texas.

Example 3: Assume now that the service member and their spouse, having previously established residency in Alabama and receiving orders to Texas, decide they want to be residents of California while living and working in Texas. The service member and their spouse would not be able to do so because they have not established residency in California, as most states require a person to reside in that state with the intent of making it their residence to establish residency and in this example neither the service member nor the spouse have done so.

Deferred Income Taxes:

Another tax protection provided in the SCRA is the ability for service members to defer their income taxes. All taxing authorities, to include the Internal Revenue Service and state and local taxing authorities, must defer income taxes due before or during military service if the service members ability to pay the income tax is materially affected by military service. In addition to this, the taxing authority cannot collect interest or establish penalties because the service member took advantage of this type of deferral. Taxes deferred in this manner may be deferred for up to 180 days after release from service, so long as the service member continues to maintain an inability to pay due to their military service.

Limitation on Sale of Property to Satisfy Tax Debts:

An often-overlooked tax protection included in the SCRA are the limits placed on the sale of a service member’s property to satisfy tax debts. A service member’s personal and real property may not be sold to enforce the collection of a tax, other than income tax, if military service has materially affected the service member’s ability to pay. Court’s may choose not to enforce collection of such taxes or sale of such property for up to 180 days after release from service. If a service member’s property is sold or forfeited to enforce the collection of a tax or assessment, a service member will have the right to redeem their property within 180 days after release from service. Interest in the amount of 6% will be charged on unpaid taxes imposed on property. No additional interest charges or penalties are admissible.

Service members and their spouses are afforded many protections under the SCRA and none are more important than those that directly affect a service member’s tax liability. Considerations beyond that of tax liability should be taken into account regarding establishing residency, since everyone’s situation is unique and failing to properly establish residency may have unintended consequences.

If you have any further questions on this topic and want to speak with an attorney, please schedule an appointment with the Fort Bliss Legal Assistance Office by either calling (915) 568-7141 during office hours or emailing usarmy.bliss.hqda-otjag.mesg.bliss-legal-assistance-office@mail.mil anytime.