How do I generate both Virginia resident and non-resident returns from a MFJ federal return?

[davetodd11]

I have a new taxpayer who is a U.S. Military member and claims Florida as his state of residence.  His previous tax preparer file his and his wife's federal returns as MFJ and then a MFS return for his wife only.  Based on him owning a home in Virginia since June 23, 2020, and having Virginia source income (Lyft driver), I believe that he actually should have filed a part-year resident Virginia return for 2020, and then regular resident returns for 2021-2023 (and owes VA taxes, which were not taken out of his W-2).  I'm trying to find out from the previous preparer how he justified not filing those Virginia returns for the TP, but I don't think there is a valid reason for not doing so.

If the Florida residency somehow holds up (I don't see how), how would I go about generating a Virginia MFS return for the spouse, when the federal return was MFJ and the Virginia return is pulling in the entire federal AGI?  The Virginia Info Worksheet is only allowing me to chose one residency status for the couple, so I can't chose Nor-resident for TP and MFS resident for spouse.

I don't believe I would be able to generate a separate client file for the spouse from which to generate just her Virginia return, as ProSeries would give me the error indicating that there is a duplicated SSN (from the MFJ federal return).  Is there a workaround for this one?

[Camp1040]

Is VA his assigned duty station? His spouse can claim FL as a residence also under MSRRA.

[davetodd11]

Virginia is his assigned duty station, but according to Virginia Dept of Tax (https://www.tax.virginia.gov/residency-status#:~:text=Resident%20%2D%2D%20A%20person%20who,Residents....), because he owns a home here that he maintains for more than 183 days, they consider him a resident.  Plus, both of them have part-time jobs in the state, so Virginia requires them to file a return.

I'm not familiar with the MSRRA, as I retired in 2001 and that didn't come about until 2009.  Does this act or the SErvicemembers' Civil Relief Act trump Virginia state filing requirements?

[sjrcpa]

Because he is a Florida resident for the military, his military wages are not taxable to VA, but other income is/could be.

[Camp1040]

Piggy backing onto @sjrcpa answer.

Spouse can claim same state of residence as military TP and will not pay VA taxes on wages earned in VA, The state form should have an election box for the MSRRA election

[sjrcpa]

Thanks. I used to do a lot of military returns but before MSRRA. I keep forgetting about it.

[davetodd11]

Do you have a reference to support that guidance?  Military OneSource (https://www.militaryonesource.mil/financial-legal/legal/military-spouses-residency-relief-act/) states that "Military spouses and service members may be required to file and pay state income taxes on other income in the state where it is earned. This includes income from rental property."

[sjrcpa]

Check VA Dept of Taxation's website. They probably have a Bulletin or some form of guidance on military.

@rbynaker ?

[davetodd11]

Yeah, looking for that now.  TB 09-10 seems to clarify it, but when they say "a spouse of a servicemember may be exempt from Virginia income tax on income from services performed in Virginia if (i) the servicemember is present in Virginia in compliance with military orders; (ii) the spouse is in Virginia solely to be with the servicemember; and (iii) the spouse maintains domicile in another state", I'm just not sure which way to read 'may'.

Camp1040 above indicated that there should be a place on the state form to elect MSRRA, but so far I haven't found that.  Would you happen to know where that is on the Virginia Form 763 non-resident return?

[rbynaker]

My military folks retired before the silliness was passed by Congress.  Want to avoid state income taxes?  Marry someone on 12/30 who's in the military with a home of record in FL, TX, etc.  Then you're retroactively a FL/TX/etc. resident for the whole year.

Oddly enough, I don't think buying a house in VA (for a servicemember) triggers VA residency.  They CAN adopt VA residency, and if they INTEND TO change residency they fill out paperwork to change the home of record which (eventually) changes the W-2 withholding.  But I don't know why anyone would voluntarily change from FL/TX/etc. TO a state with an income tax.

<shrug> That's all I got.  I knew the "old" rules pretty well but haven't had to dig too deeply into the new "where do you want to pretend to have lived last year" rules.

[Camp1040 · Accepted solution]

Excerpt from VA instructions.

Spouses of Military Personnel: For Taxable Year 2018
and after, the Servicemember Civil Relief Act (SCRA), as
amended by Veterans Benefits and Transition Act, provides
that the spouse of a servicemember may to elect to use
the same residence for state tax purposes as that of the
servicemember. Under the SCRA, an electing spouse of a
military servicemember may be exempt from Virginia income
tax on wages if the servicemember is present in Virginia in
compliance with military orders. More information is available
in Tax Bulletin 19-2 available at www.tax.virginia.gov.

There should be a spot on the VA information worksheet to indicate that the spouse elects to choose the same residency has the Military TP.

There shoudl also be a question for the TP.

The question is on the states that I have filed for military AZ, AL & KY with all the TP electing to be resident of TN where they firs entered the military or changed to be a resident of the state.

[davetodd11]

Excellent - this is exactly what I needed.  Couldn't see the forest for the trees when searching VA's tax website.  Thanks!

[sjrcpa]

@Daverodd11  It says "may" because it is a choice for the spouse to use same state of residence as military person. They don't have to.