FAQs for Military Spouses and their Employers
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How do the federal Military Spouses Residency Relief Act (MSRRA) and the Veterans Benefits and Transition Act of 2018 (VBTA) affect me?
For spouses who are residents of the same state as the military servicemember, the income earned by the spouse while accompanying the servicemember to Nebraska is only taxable in the spouse's state of legal residence. The VBTA amended the MSRRA by adding an election to allow the military servicemember spouse to claim the military servicemember's state of residency for tax purposes for any taxable year of the marriage.
If this election is made, the income earned by the spouse accompanying the servicemember to Nebraska would only be taxable in the servicemember's state of legal residence.
What tax years are affected by the MSRRA?
The MSRRA applies to tax years beginning on or after January 1, 2009. The VBTA election provision became available beginning with the 2018 tax year.
Who qualifies under the MSRRA and the VBTA?
Effective for tax years beginning in 2009, the income earned for services performed in Nebraska by the spouse, who is a legal resident of a state other than Nebraska, is exempt from Nebraska income tax if:
- The servicemember is present in Nebraska solely in compliance with military orders;
- The spouse is in Nebraska solely to be with the servicemember; and
- The spouse is a legal resident of the same state as the servicemember. Beginning in tax year 2018, spouses of military servicemembers may elect to use the military servicemember's state of residency for tax purposes.
All three conditions must be met to qualify for exemption as a qualified spouse.
Nonresident spouse, expecting a refund:
How can I receive a refund of this Nebraska withholding?
I am married to a military servicemember who is a nonresident of Nebraska. I am living in Nebraska only because the servicemember is stationed in Nebraska. We are both legal residents of the same state outside of Nebraska, or for 2018 and after, I have elected to use the servicemember's state of residence for tax purposes. I understand my wages cannot be taxed by Nebraska; however, during this tax year, my employer withheld Nebraska income tax from my wages. How can I receive a refund of this Nebraska withholding?
A qualified spouse may be due a refund of Nebraska income tax withheld in error. To receive this refund of Nebraska tax, a Nebraska Individual Income Tax Return, Form 1040N, must be filed, along with a Schedule III - Computation of Nebraska Tax for Nonresidents and Partial-Year Residents Only. On line 1 of Schedule III, write “Exempt Nonresident Military Spouse,” and enter zero as the amount of Nebraska source income.
Nonresident spouse, getting Nebraska withholding stopped:
How can I tell my employer to stop withholding the Nebraska income tax?
I am married to a military servicemember. We are both residents of South Dakota. We are living in Nebraska because the servicemember is stationed in Nebraska. Because of the MSRRA or VBTA provisions, it is not necessary for my employer to withhold Nebraska income tax from my wages. How can I tell my employer to stop withholding the Nebraska income tax?
Qualified spouses must complete and file the Nebraska Employee Certificate for Allocation of Withholding Tax, Form 9N, with their employers. On Form 9N, check the box certifying that you are a qualified spouse. If your employer has already withheld income tax for the current year, an adjustment can be made on a future paycheck to refund this prior withholding.
How long is Form 9N effective?
If you are claiming exemption from withholding, the Form 9N is effective for one calendar year. A new Form 9N must be completed and given to your employer each year to maintain exempt status for the following tax year. If, during the year, the spouse no longer meets the requirements for exemption, the spouse must complete a new Form 9N.
Nonresident servicemember transferred, spouse stays in Nebraska:
Do my wages in Nebraska remain exempt from withholding?
I am married to a military servicemember, and I previously met the conditions to qualify for the exemption. However, the servicemember has been transferred to another state in compliance with military orders, and I do not wish to move to the other state.
No. The spouse must complete a new Form 9N. The spouse no longer meets the conditions to qualify for exemption from withholding — the spouse is no longer in Nebraska solely to be with the military servicemember. Any other income earned by the spouse for services performed in Nebraska is subject to Nebraska income tax.
Nonresident spouse, employer is still withholding Nebraska tax:
What steps can I take to have my employer stop withholding Nebraska income tax?
I am married to a military servicemember. We are both residents of Indiana, beginning in 2018 for tax purposes. I have elected to use my military servicemember spouse's state of legal residence. We are living in Nebraska because the servicemember is stationed in Nebraska. I have a part-time job in Nebraska, and I have given my employer a properly completed Form 9N to discontinue withholding because of the MSRRA and VBTA provisions, but my employer continues withholding Nebraska income tax.
Your employer may require additional proof that you are a qualified spouse. Your military dependent identification documents, and a leave and earnings statement showing the servicemember's legal residence, should be sufficient. Also, you may have the employer review the Information Guide for Military Servicemembers on our website. If the employer still has questions, the employer should contact DOR.
Can I give my employer a copy of my military dependent identification documents when trying to prove eligibility for the unique tax treatment allowed under the MSRRA and VBTA?
Nonresident servicemember, assigned to combat zone:
Can I continue to exempt all income I have earned for services performed in Nebraska?
I am married to a military servicemember and have met the conditions of a qualified spouse for the MSRRA or VBTA exemption. The servicemember has been temporarily assigned to a combat zone. Can I continue to exempt all income I have earned for services performed in Nebraska?
Yes, if the servicemember’s assigned duty station remains in Nebraska and there has been no permanent change of station.
Nonresident spouse, who does not qualify under MSRRA or VBTA:
Do I owe Nebraska income tax on the wages earned from the job I have in Nebraska?
I am married to a military servicemember stationed in Nebraska, and this servicemember is a resident of California. I am an Arizona resident living in Nebraska because the servicemember is stationed in Nebraska. Do I owe Nebraska income tax on the wages earned from the job I have in Nebraska?
Yes, you owe Nebraska income tax on any income you earn in Nebraska. This is because only nonresident military spouses with the same legal residence as the servicemember qualify for the tax relief provisions of the MSRRA. However, under the provisions of VBTA, if you make the election to claim the military servicemember's state of residency of California, then the wages would not be taxed by Nebraska.
Nonresident spouse, income does not qualify under MSRRA or VBTA:
I am married to a military servicemember, and we are stationed in Kansas. I have income earned in Nebraska. Do I owe Nebraska income tax?
Yes. Nebraska income tax is owed in this case because the servicemember is not stationed in Nebraska. This income does not qualify under the MSRRA or VBTA.
What is “earned income?”
Earned income includes salaries, wages, tips, professional fees, and other compensation received for personal services.
What type of income is NOT exempt from Nebraska income tax under MSRRA and VBTA??
The following types of income are NOT exempt under MSRRA or VBTA:
- Income received from the ownership of any interest in real or tangible personal property in Nebraska;
- Income from gambling activities in Nebraska; and
- Income from a Nebraska partnership, S corporation, or sole proprietorship, unless the spouse was NOT actively involved in the business.
Nonresident servicemember who earns non-military income:
Is the non-military income subject to Nebraska tax?
The military servicemember's legal residence is Iowa, but he/she earns non-military income while stationed in Nebraska.
Yes. Income received by a servicemember from non-military employment is subject to Nebraska income tax. In addition, income:
- Received from the ownership of any interest in real or tangible personal property in Nebraska;
- From a business, trade, profession, or occupation carried on in Nebraska; or
- From gambling activities in Nebraska
is subject to Nebraska income tax.
Nebraska residents stationed in another state:
To what state do we owe income tax?
My spouse and I moved to Maryland on military orders after I joined the service. We were both legal residents of Nebraska before arriving in Maryland.
If you do not change your legal state of residence, you both continue to be Nebraska residents. You will pay Nebraska income tax on all of your income. If the military servicemember has non-military income in the other state, contact that state to determine reporting requirements. Nebraska residents are allowed a credit for income tax properly paid to another state.
Estimated payments to Nebraska:
My employer is not required to withhold Nebraska tax, so how should I pay Nebraska tax during the year?
I am married to a military servicemember, and we moved to Maryland on military orders. We are both legal residents of Nebraska.
You may make Nebraska individual income tax estimated payments electronically. You can also use Form 1040N-ES, Nebraska Individual Estimated Income Tax Payment Voucher; or you can increase the Nebraska income tax withholding from the servicemember's military pay.
Resident spouse, penalty and interest:
Will I be charged penalties and interest in Nebraska if I file after the due date?
I am a Nebraska resident married to a military servicemember. We are living in Wisconsin as a result of military orders. I now owe Nebraska income tax for the current tax year and qualify under the MSRRA.
Penalties and interest are assessed if a Nebraska return is filed after the due date and an amount is owed. To avoid a late penalty and interest on the tax owed, you will need to file by the due date. If your employer will not withhold Nebraska taxes for future tax years, you must make Nebraska estimated income tax payments to avoid the penalty for the underpayment of tax or increase the Nebraska income tax withholding from the servicemember's military pay.
I have not made estimated payments during the current tax year, so will I be penalized?
I am married to a Nebraska servicemember, and we are living in Maryland as a result of military orders. I understand that I need to file a Nebraska return.
When you file your Nebraska return, it is possible that you will receive an underpayment of estimated tax penalty notice from DOR.
Nebraska employer's documentation for why Nebraska tax is not being withheld:
How do I document not withholding Nebraska income tax for the qualified spouse?
I am an employer in Nebraska. My employee tells me that as the nonresident spouse of a military servicemember, his/her Nebraska income is not subject to Nebraska withholding. Beginning with tax year 2018, the employee can elect to use the military servicemember spouse's state of legal residence for tax purposes.
The employee should provide you with a completed copy of the Nebraska Employee Certificate for Allocation of Withholding Tax, Form 9N, and sufficient evidence that he/she is a qualifying spouse. The military dependent identification documents and a leave and earnings statement showing the servicemember's legal residence are sufficient.
Employer has already withheld for the current tax year:
What if I have already withheld income tax for the current tax year?
Employers who receive a properly completed Form 9N after withholding has already been deducted from the current tax year paychecks may make an adjustment in their records to show the withholding going back to the qualified spouse. If the payment and return have already been filed with Nebraska, the employer may show the correction as a negative amount on line 3 of the Nebraska Withholding Return, Form 941N. The Form 941N, line 3, is used to correct errors in income tax withheld from payments paid in earlier quarters of the same calendar year.
Employer withholding for another state:
Am I required to withhold Iowa tax?
I am a Nebraska employer. My employee, a qualified spouse, wants Iowa (instead of Nebraska) income tax withheld.
Generally, you are only required to withhold income tax for another state if you have a business presence in that state. Contact the state in question to determine if you are required or able to withhold its income tax.