Understanding Common Military Tax Challenges: A Practical Guide for Service Members and Their Families

Active-duty service members and military families face unique tax questions—especially around residency, PCS moves, and state tax obligations. Understanding the difference between your home of record and legal residency, whether you owe taxes in multiple states, and how spousal employment affects state taxes can prevent unnecessary stress. S&P Accounting, a veteran-friendly accounting firm based in Ocala, FL and serving military families nationwide, helps simplify these issues so you can stay compliant and focused on your mission.

Home of Record vs. Legal Residency

The most common tax confusion among service members involves home of record (HOR) and legal residency (also called “domicile”). Your HOR is the state recorded when you joined the military—it rarely changes and primarily affects travel allowances and military paperwork. Legal residency, on the other hand, determines where you pay state income taxes, maintain your driver’s license, vote, and intend to return after service.

S&P Accounting regularly helps service members clarify residency status and ensure that tax filings match their legal domicile—not their duty station or home of record—avoiding unnecessary state tax payments.

Misconceptions About Multi-State Filing

PCS orders often create confusion about whether military members must file taxes in multiple states. Generally, active-duty service members only owe state income tax to their legal state of residency, even when stationed elsewhere. However, certain types of income—such as rental income or side-business earnings—may create filing obligations in other states.

S&P Accounting helps military families review their income sources and filing requirements to avoid both underpayment and overpayment across states.

Spousal Employment and State Tax Rules

The Military Spouse Residency Relief Act (MSRRA) and later amendments allow spouses to claim the service member’s state of legal residency under certain conditions. However, many spouses unknowingly pay unnecessary state taxes because their employer withholds taxes for the duty-station state.

With guidance from S&P Accounting, spouses can properly complete employer forms, update their state residency elections, and avoid double taxation or incorrect withholding.

PCS Moves and Tax Planning Considerations

While PCS reimbursements are generally non-taxable, frequent moves create unique financial considerations: new state rules, varying cost-of-living impacts, and potential changes to deductions. Service members may also need help tracking taxable allowances, managing rental properties when relocating, or understanding how a PCS affects child tax credits and filing status.

S&P Accounting works with families before and after a PCS to review expected taxes, update residency documentation, and make sure no important details fall through the cracks.

Get Peace of Mind With Expert Military Tax Support

Military tax rules are complex, but you don’t have to navigate them alone. Whether you're dealing with residency questions, PCS changes, spousal employment, or multi-state concerns, S&P Accounting is here to help.

Schedule a consultation today for personalized military tax guidance from S&P Accounting.