Was a nonresident military spouse's Illinois self-employment income from providing child care exempt under the Servicemembers Civil Relief Act?

Plain-English summary

The federal military-spouse rule could protect self-employment income, not just employee wages. The request described a nonresident spouse providing child-care services from an apartment on a military base while in Illinois because the servicemember spouse was stationed there.

The GIL said the protection extended to self-employment income to the extent it derived from services personally performed by the military spouse. Assuming the submitted facts were true and all requirements of the federal provision were met, the income was not subject to Illinois income tax. The couple therefore had no 2013 Illinois income-tax liability and did not need to file an Illinois return for that year.

What this means for you

The label placed on the payment—wages or self-employment income—was not decisive. The key questions were whether the income came from the spouse's own services and whether the domicile, military-order, and Illinois-presence requirements were all satisfied.

The letter did not exempt investment income, sales of property, or every receipt from a spouse-owned business. Its answer was limited to income derived from personal services.

Common questions

Q: Did the GIL limit the protection to Form W-2 wages?
A: No. It said the rule was not limited to wage income.

Q: Did it cover the described child-care self-employment income?
A: Yes, assuming the federal requirements and submitted facts were satisfied, because the income derived from the spouse's services.

Q: Did the couple have to file an Illinois return for 2013?
A: Not on the facts given; the GIL said they had no Illinois income-tax liability for that year.

Citations and references

• 50 U.S.C. App. § 571(c) — Servicemembers Civil Relief Act provision quoted by the 2015 GIL
• 86 Ill. Adm. Code 1200.120(b), (c) — status and effect of a General Information Letter

Subject

Subtraction Modifications – Military

Source

• Landing page: https://taxarchive.illinois.gov/research/legal/letter-rulings/income-tax/2015.html
• Original PDF: https://tax.illinois.gov/content/dam/soi/en/web/taxarchive/research/legal/letter-rulings/income-tax/2015/it-15-0001-gil.pdf

Original ruling text

IT 15-0001 GIL 2/24/2015 Subtraction Modifications – Military
Personal service income earned by a nonresident who is in Illinois only because the nonresident’s
spouse is a member of the military stationed in this State is exempt from Illinois income tax by the
Servicemembers Civil Relief Act. (This is a GIL.)
February 24, 2015

Re:

Illinois income tax

Dear Mr. XXXX:
This is in response to your letter received by this office January 8, 2015. The nature of your letter and
the information provided require that we respond with a General Information Letter (GIL). A GIL is
designed to provide general information, is not a statement of Department policy and is not binding on
the Department. See 86 Ill. Adm. Code 1200.120(b) and (c), which may be accessed from the
Department’s web site at www.ILtax.com.
Your letter states as follows:
It has come to my attention that the wording in IL Dept. Rev Publication 102 is unclear as to how
a military spouse should report their civilian wages. On page 3 of 4 from Pub 102 it states that
under the Military Spouse Residency Relief Act, effective for tax years 2009 and after:
If you are a nonresident spouse of a service member, you and your service member spouse have
the same domicile, and you are in Illinois only to accompany your spouse on his or her military
assignment, your employee wages earned in Illinois are not taxable by Illinois.
Please clarify if this includes income from self-employment. Currently, after I reviewed a
prospective client’s 2013 federal and Illinois tax return and seeing how the spouse may be taxed
on this income, prompted my writing to your department for a letter ruling since the Pub 102 is
not clear.
Note: The self-employment income is from providing child care services in their apartment on
base at BASE. See the enclosed sample Illinois return I prepared. If your ruling is that it is not
taxable income to the military spouse…then where on the IL Schedule NR should this be
subtracted. Perhaps line 44 of the Schedule NR? Also, they are residents of STATE on
assignment in Illinois
RULING
Section 571(c) of the Servicemembers Civil Relief Act (Relief Act), 50 USCA App 571, states:
Income for services performed by the spouse of a servicemember shall not be deemed to be
income for services performed or from sources within a tax jurisdiction of the United States if
the spouse is not a resident or domiciliary of the jurisdiction in which the income is earned
because the spouse is in the jurisdiction solely to be with the servicemember serving in
compliance with military orders.

The above provision is not limited to wage income, but may extend to the self-employment income of a
servicemember’s spouse to the extent such income derives from services performed by the
servicemember’s spouse. Therefore, provided the other requirements of Section 571(c) of the Relief Act
are satisfied, the income referenced in your letter is not subject to Illinois income tax. Assuming the
facts as provided in your letter and sample return are true, the taxpayers are not required to file an
Illinois income tax return for the 2013 tax year because they have no Illinois income tax liability for
such year.
As stated above, this is a GIL. A GIL does not constitute a statement of policy that applies, interprets or
prescribes the tax laws, and it is not binding on the Department.

Sincerely,

Brian L. Stocker
Associate Counsel (Income Tax)