Frequently Asked Questions Regarding the Military Spouses Residency Relief Act of 2009

  1. What is the Military Spouses Residency Relief Act of 2009?

    Important Tax Information Regarding Spouses of United States Military Servicemembers

  2. What tax years are affected by the Military Spouses Residency Relief Act of 2009?

    The Act applies to tax years beginning on or after January 1, 2009.

  3. Under what conditions is the income received for services performed in North Carolina by the spouse of a servicemember exempt from North Carolina income tax?

    Effective for tax years beginning in 2009, the income earned for services performed in North Carolina by the spouse of a servicemember who is legally domiciled in a state other than North Carolina is exempt from North Carolina income tax if (1) the servicemember is present in North Carolina solely in compliance with military orders; (2) the spouse is in North Carolina solely to be with the servicemember; and (3) the spouse is domiciled in the same state as the servicemember. All three conditions must be met to qualify for exemption.

  4. Is the spouse of a servicemember who meets the conditions above required to file a 2013 return to receive a refund of North Carolina income tax withheld in 2013?

    Yes.

  5. How does the spouse of a servicemember who meets the conditions above exclude the earned income on the 2013 North Carolina return?

    Complete the Part-Year Resident/Nonresident Worksheet included in the North Carolina Individual Income Tax Instructions (D-401). Because the income is not subject to North Carolina tax, do not include the income when completing Column B of the worksheet. Enter the applicable amounts on lines 53-55 of Form D-400. (Do not deduct the income as an “other deduction” on line 51.)

  6. Is the spouse of a servicemember required to pay North Carolina income tax on income earned for services performed in North Carolina if the servicemember was stationed in a state other than North Carolina?

    Yes, because all three conditions above would not have been met.

  7. Can the spouse of a servicemember exempt any income other than income earned for services performed in North Carolina?

    No.

  8. What is "earned income?"

    Salaries, wages, tips, professional fees, and other compensation received for personal services.

  9. What type of income is not exempt from North Carolina income tax under the Act?

    Income received from North Carolina sources attributable to the ownership of any interest in real or tangible personal property in North Carolina, or derived from gambling activities in North Carolina is subject to North Carolina income tax. In addition, income from a North Carolina partnership, S corporation, or sole proprietorship is subject to North Carolina income tax unless the spouse was actively involved in the business.

  10. If a servicemember and spouse are both domiciled in North Carolina but live in another state in compliance with military orders, are the servicemember and spouse required to file a return with North Carolina?

    Yes, if the income exceeds the amounts for the filing status as shown in Chart A or B of the income tax instructions (Form D-401).

  11. The spouse of a servicemember has met the conditions to qualify for the exemption. However, the servicemember has been temporarily assigned to a combat zone. Can the spouse continue to exempt all income earned for services performed in North Carolina?

    Yes, if the servicemember’s assigned duty station remains North Carolina.

  12. What information must a servicemember’s spouse provide to the employer to qualify for exemption from North Carolina withholding tax?

    The spouse must complete Form NC-4 EZ, Employee’s Withholding Allowance Certificate, certifying that the spouse is not subject to North Carolina withholding because the conditions for exemption have been met. The spouse certifies the state of domicile and attaches a copy of the spousal military identification card and a copy of the servicemember’s most recent leave and earnings statement to Form NC-4 EZ.

  13. For how long is Form NC-4 EZ effective?

    If claiming exemption from withholding, the certificate is effective for one calendar year and a new certificate must be completed and given to the employer by December 1 to maintain exempt status for the following tax year. If a new Form NC-4 EZ is not provided by December 1, the employer is required to withhold based on single status with zero allowances. If, during the year, the spouse no longer meets the requirements for exemption on line 4, the spouse must complete a new Form NC-4 EZ.

  14. The spouse of a servicemember has met the conditions to qualify for the exemption. However, the servicemember is transferred to another state in compliance with military orders and the spouse does not move to the other state. Do the wages of the spouse remain exempt from withholding?

    No. The spouse must complete a new Form NC-4 EZ because the spouse no longer meets the conditions to qualify for exemption from withholding. Any other income earned by the spouse for services performed in North Carolina is subject to North Carolina income tax.

  15. The servicemember is domiciled in another state but earns non-military income while stationed in North Carolina. Is the non-military income subject to North Carolina income tax?

    Yes. Income received by a servicemember from non-military employment is subject to North Carolina income tax. In addition, income received from North Carolina sources attributable to the ownership of any interest in real or tangible personal property in North Carolina or derived from a business, trade, profession, or occupation carried on in North Carolina, or derived from gambling activities in North Carolina is subject to North Carolina income tax.

  16. Does the Military Spouses Residency Relief Act of 2009 apply to the spouse of a servicemember who is domiciled in North Carolina?

    No. Withholding from wages paid to the spouse of a servicemember domiciled in North Carolina is still required.

 

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