Most employers are familiar with the form HW-4, Hawaii's Employee's Withholding Allowance and Status Certificate. What does it mean when an employee selects "Nonresident Military Spouse (not subject to withholding)" as their marital status?

According to the U.S. Department of Defense in May 2021, there are almost a million American military spouses. Many seek employment in the state where their servicemember spouse is stationed. These workers often raise questions as to how their wages are taxed and which state(s) have jurisdiction over their earnings as they and/or their spouse relocate under military orders.

The Servicemembers Civil Relief Act (SCRA), Pub. L. 108-189 (Dec. 19, 2003), governs the determination of residence or domicile of servicemembers and their spouses, which in turn determines the state with tax jurisdiction. Under the SCRA, a servicemember will not lose (or acquire) a residence or domicile by being present in (or absent from) a tax jurisdiction (i.e., state) in the United States solely in compliance with the servicemember’s military or naval orders. The Military Spouses Residency Relief Act (MSRRA), Pub. L. 111-97 (Nov. 11, 2009) amended the SCRA to add a similar provision so that a servicemember’s spouse will not lose (or acquire) a residence or domicile by being present in (or absent from) a state in the United States solely to be with the servicemember in compliance with the servicemember’s military or naval orders.

The State of Hawaii Department of Taxation issued Tax Information Release (TIR) No. 2010-01 (May 3, 2010) which provides guidance on the effects of the SCRA, as amended by the MSRRA, for Hawaii income tax and withholding purposes.

Additionally, HEC has prepared a white paper on The Military Spouses Residency Relief Act for HEC members which summarizes the MSRRA and the TIR’s requirements for a nonresident spouse of a servicemember working in Hawaii to receive Hawaii income tax withholding exemption, as well as circumstances in which the exemption does not apply.