The New Jersey Division of Taxation issued guidance regarding the New Jersey tax consequences of the recently enacted federal law S. 475, the Military Spouses Residency Relief Act.  The federal law allows a military servicemember’s spouse to keep a tax domicile throughout the marriage and keep it while moving from state to state, as long as the spouse moves into a state to be with a servicemember who is in the state on military orders.

The Military Spouses Residency Relief Act is effective for the 2009 income tax year and thereafter. It does not affect taxes imposed or paid for 2008 and earlier.

For New Jersey Gross Income Tax purposes, the Military Spouses Residency Relief Act provides that a spouse of a servicemember may be exempt from New Jersey Gross Income Tax on income from services performed in New Jersey if:

• The servicemember is present in New Jersey in compliance with military orders;
• The spouse is in New Jersey solely to be with the servicemember; and

• The spouse maintains domicile in another state.

Qualifying servicemember’s spouses who worked in New Jersey during 2009 and had New Jersey gross income tax withheld will be entitled to a refund of the withheld taxes.  Qualifying servicemember’s spouses who are not domiciled in New Jersey may request a refund of taxes withheld or paid for the 2009 tax year by filing the New Jersey Nonresident Income Tax Return (NJ-1040NR) with an attached explanation referencing this federal law. Refunds for taxable year 2009 may be claimed on and after January 1, 2010.

Spouses whose wages are exempt from New Jersey Gross Income Tax under the Military Spouses Residency Relief Act may claim an exemption from New Jersey Income Tax withholding on a forthcoming revised Form NJ-165 to be filed with their employers.

The new law also applies to a partner in a Civil Union (or spouse in an out-of-state same sex marriage).