When is a military servicemember's spouse exempt from South Carolina income tax on wages earned in South Carolina, and how do they claim it?

Plain-English summary

Military families move where the orders send them, and federal law protects them from losing their home-state tax status just because they're stationed somewhere else. SC Revenue Ruling #21-10 explains how that protection works for a servicemember's spouse who lives and works in South Carolina. It supersedes SC Revenue Ruling #10-5, and — as of a later update — was itself superseded by SC Revenue Ruling #24-5 (see the disclaimer).

The federal law. Under the Servicemembers Civil Relief Act (50 U.S.C. § 4001), a servicemember neither loses nor gains a tax domicile just by being stationed in a state under orders. In 2009, the Military Spouses Residency Relief Act extended similar protection to spouses, and in 2018 the Veterans Benefits and Transition Act added an election letting a spouse simply choose the servicemember's domicile — regardless of the marriage date (effective for tax years beginning on or after January 1, 2018).

The three-part test. A spouse is not taxed by South Carolina on personal-service income earned here if all of the following are true:

1. The servicemember and spouse share a domicile outside South Carolina, or the spouse elects to use the servicemember's out-of-state domicile;
2. The servicemember is stationed in South Carolina under military orders; and
3. The spouse is living in South Carolina solely to be with the servicemember.

What's protected — and what isn't. The exclusion covers the spouse's personal-service income: wages, salary, tips, professional fees, and service income actively earned through a sole proprietorship, partnership, or S corporation (to the extent it's self-employment income). It does not shelter everything: South Carolina still taxes the spouse's South Carolina rental income (§ 12-6-2220(3)) and non-service business income sourced to South Carolina, like any nonresident. Interest and dividends not connected to a South Carolina business are not taxed if the spouse is domiciled elsewhere.

Border states. The Department reads the federal Act to work even when the pieces straddle a border state (Georgia or North Carolina) — for example, the couple lives in Georgia while the spouse commutes to a South Carolina job, or the servicemember's duty station is across the line. The Act doesn't require the duty station, the home, and the workplace to all be in the same state, as long as the other requirements are met.

Servicemember's own income. The rules aren't identical for the servicemember: a nonresident servicemember's military pay isn't taxed by South Carolina, but income from a civilian job the servicemember works in South Carolina is taxable here.

Claiming it / withholding. To stop South Carolina withholding on the spouse's wages, the spouse gives the employer a Form SC W-4 (it expires each December 31, so a new one is filed each year). A spouse who marries a servicemember mid-year may elect the servicemember's domicile for the whole year, and a spouse who already had South Carolina tax withheld can file a claim for refund under Code § 12-60-470.

What this means for you

Military spouses working in South Carolina

If you're in South Carolina only because your servicemember spouse is stationed here, and you share (or elect) an out-of-state domicile, your South Carolina wages aren't taxed by South Carolina. File a Form SC W-4 with your employer each year to stop withholding, and claim a refund if South Carolina tax was already withheld. Remember: South Carolina rental or non-service business income you have here is still taxable.

Employers of military spouses

When a qualifying spouse gives you a Form SC W-4 claiming the exemption, you stop withholding South Carolina income tax on their wages. The form expires December 31, so collect a new one annually.

Accountants and military-family advisors

The 2018 election is the key modernization: the spouse can adopt the servicemember's domicile regardless of when they married, effective for tax years beginning on or after January 1, 2018. Note the Department's taxpayer-favorable border-state (GA/NC) reading. Because this ruling has since been superseded by SC RR #24-5, use RR 24-5 for the current framework (including the 2023 federal election).

Common questions

Q: I'm a military spouse working in South Carolina. Do I owe South Carolina income tax on my wages?
A: Not if the servicemember is stationed in South Carolina under orders, you're here solely to be with them, and you share or elect the servicemember's out-of-state domicile. Your South Carolina wages are then not taxed by South Carolina.

Q: What if my domicile is South Carolina but my servicemember spouse's isn't?
A: Since 2018, you may elect to use the servicemember's out-of-state domicile (regardless of when you married), which can exclude your South Carolina wages from South Carolina tax.

Q: Is all of my income exempt?
A: No. Only personal-service income (wages, service income) is excluded. South Carolina rental income and non-service business income sourced here are still taxable.

Q: How do I stop South Carolina withholding?
A: File a Form SC W-4 with your employer claiming the exemption; it must be renewed each year. If tax was already withheld, claim a refund under Code § 12-60-470.

Q: Does the servicemember's own income get the same treatment?
A: Military pay of a nonresident servicemember isn't taxed by South Carolina, but a civilian job the servicemember works in South Carolina is taxable here.

Citations and references

Federal:

• 50 U.S.C. § 4001 — Servicemembers Civil Relief Act (residence/domicile for taxation)
• Military Spouses Residency Relief Act (2009); Veterans Benefits and Transition Act (2018, P.L. 115-407) — spouse domicile election

South Carolina:

• § 12-6-30 (definitions); § 12-6-1720 (nonresident taxation); § 12-6-2220 (income allocation — rental income still taxed); § 12-6-3400 (credit for taxes paid to another state)
• § 12-60-470 — claim for refund of withheld tax; Form SC W-4

Related Department guidance (described in prose, not linked): this ruling supersedes SC Revenue Ruling #10-5 and was itself superseded by SC Revenue Ruling #24-5.

Source

• Landing page: SC Advisory Opinion Search
• Original PDF: RR21-10.pdf

Original ruling text

STATE OF SOUTH CAROLINA

DEPARTMENT OF REVENUE

300A Outlet Pointe Blvd., Columbia, South Carolina 29210
P.O. Box 125, Columbia, South Carolina 29214-0575

SC REVENUE RULING #21-10

SUBJECT: Military Servicemember Spouse — Domicile and Taxation
(Income Tax)

EFFECTIVE DATE: All periods open under statute, except the amendment by P.L. 115-407
applies to tax years beginning on or after January 1, 2018.

SUPERSEDES: SC Revenue Ruling #10-5 and all previous advisory opinions and any
oral directives in conflict herewith.

REFERENCES: S.C. Code Ann. Section 12-6-30 (2014)
S.C. Code Ann. Section 12-6-1720 (2014)
S.C. Code Ann. Section 12-6-2220 (2014)
S.C. Code Ann. Section 12-6-3400 (2014)
50 U.S.C. Section 4001

AUTHORITY: S.C. Code Ann. Section 12-4-320 (2014)
S.C. Code Ann. Section 1-23-10(4) (2005)
SC Revenue Procedure #09-3

SCOPE: The purpose of a Revenue Ruling is to provide guidance to the public
and to Department personnel. It is an advisory opinion issued to apply
principles of tax law to a set of facts or general category of taxpayers.
It is the Department’s position until superseded or modified by a
change in statute, regulation, court decision, or another Department
advisory opinion.

PURPOSE OF UPDATE

The purpose of this advisory opinion is to update SC Revenue Ruling #10-5 to address changes
made to the Servicemembers Civil Relief Act! (“Federal Act”) by the Veterans Benefits and
Transition Act? in 2018 that allows a spouse to elect the domicile of a servicemember; to update
the documentation a spouse meeting the Federal Act requirements must provide to an employer
to request exemption from withholding; and to clarify the Department’s guidance with respect to
the application of the Federal Act when a nonresident military servicemember is stationed in a
border state, or is living with his or her spouse in a border state.

'P.L. 108-189 (December 19, 2003). The Servicemembers Civil Relief Act revised and replaced the Soldiers’ and
Sailors’ Relief Act.

2 P.L. 115-407 (December 31, 2018). The Veterans Benefits and Transition Act applies to any taxable year that
includes the date of enactment, including 2018 individual income tax returns.

This advisory opinion addresses common questions associated with the income tax provisions of
the Federal Act and uses the term “domicile” solely in reference to a person’s domicile for
income tax purposes. All other Federal Act provisions, including those that deal with property
taxes, are not addressed. For simplicity, this advisory opinion will refer to a military
servicemember as “servicemember” and the military servicemember’s spouse as “spouse.”

FEDERAL LAW - SERVICEMEMBERS CIVIL RELIEF ACT

50 U.S.C. Section 4001 reads:
(a) Residence or domicile?

(1) A servicemember shall neither lose nor acquire a residence or domicile for
purposes of taxation with respect to the person, personal property, or income of
the servicemember by reason of being absent or present in any tax jurisdiction of
the United States solely in compliance with military orders.

(2) Spouses —
(A) In general

A spouse of a servicemember shall neither lose nor acquire a residence or
domicile for purposes of taxation with respect to the person, personal property, or
income of the spouse by reason of being absent or present in any tax jurisdiction
of the United States solely to be with the servicemember in compliance with
servicemember’s military orders if the residence or domicile, as the case may be,
is the same for the servicemember and the spouse.*

(B) Election

For any taxable year of the marriage, the spouse of a servicemember may elect to
use the same residence for purposes of taxation as the servicemember regardless

of the date on which the marriage of the spouse and the servicemember
occurred.>

(b) Military service compensation

Compensation of a servicemember for military service shall not be deemed to be income
for services performed or from sources within a tax jurisdiction of the United States if
the servicemember is not a resident or domiciliary of the jurisdiction in which the
servicemember is serving in compliance with military orders.

3 The Federal Act uses the terms “domicile” and “resident” or “residency” interchangeably. This advisory opinion
will use the term “domicile.”

4 This provision was added by the Military Spouses Residency Relief Act in 2009.

This provision was added by the Veterans Benefits and Transition Act in 2018.

(c) Income of a military spouse

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.°

BACKGROUND OF SOUTH CAROLINA TAXATION AND FEDERAL ACT
DOMICILE RULES

General SC Income Tax Principles. A South Carolina resident individual is taxed on all
personal service income, no matter where earned. If the South Carolina resident is taxed
by another state for personal services performed in that state, the resident individual may
claim a credit against South Carolina income taxes for taxes paid in the other state. Unlike
a resident individual, a nonresident individual is taxed only on personal service income
earned in South Carolina. “Resident individual” means an individual domiciled in this
State. “Nonresident individual” means an individual other than a resident individual or a
part-year resident.’

Servicemember’s Domicile and Taxation of Income under the Federal Act. An exception
to the general principles above has existed for servicemembers under the Servicemembers
Civil Relief Act for many years.® A servicemember has been allowed to keep his or her tax
domicile as his or her home state when serving in another state in compliance with
military orders and has been taxed on military pay only in the home state. Under the
Federal Act, a “nonresident” servicemember stationed in South Carolina is not subject to
South Carolina income tax on military service pay. Other personal service income (e.g.,
wages from a civilian job) earned by the “nonresident” servicemember in South Carolina,
however, would be subject to tax in South Carolina under general South Carolina income
tax principles. The rules for a servicemember’s spouse are not the same.

Spouse’s Domicile and Taxation of Income under the Federal Act. Before 2009, a
servicemember’s spouse, regardless of the state of domicile, was taxed on personal service
income earned in South Carolina, like any other nonresident individual.

In 2009, the Military Spouses Residency Relief Act? was enacted and amended the
Servicemembers Civil Relief Act to allow a spouse to retain a domicile other than the state in
which the spouse is living, if the spouse is living in the state solely to be with the servicemember
serving in compliance with military orders and the servicemember and the spouse have the same
domicile. Further, personal service income of the “nonresident” spouse will not be taxable by the
state where the income is earned, if the spouse is in the jurisdiction solely to be with the
servicemember serving in compliance with military orders.!°

6 This provision was added by the Military Spouses Residency Relief Act in 2009.
T Code Sections 12-6-30, 12-6-1720, 12-6-2220(6), and 12-6-3400.

8 50 U.S.C. Section 4001(b).

°P.L. 111-97 (November 11, 2009).

!0 50 U.S.C. Section 4001(a)(2)(A) and (c).

In 2018, the Veterans Benefits and Transition Act!'! was enacted and further amended the
Servicemembers Civil Relief Act to allow the spouse to elect to use the same domicile as the
servicemember, regardless of the date of the marriage. |? If the election is made, the spouse’s
domicile is deemed to be the same as the servicemembers. Further, personal service income of
the “nonresident” spouse will not be taxable by the state where the income is earned, if the
spouse is in the jurisdiction solely to be with the servicemember serving in compliance with
military orders. !°

DETERMINATION OF DOMICILE AND TAXATION OF PERSONAL SERVICE
INCOME OF A SERVICEMEMBER’S SPOUSE UNDER THE FEDERAL LAW

Below are the Department’s interpretations of the Federal Act regarding a servicemember

spouse’s domicile for income tax purposes as it applies in South Carolina. Other states may have
different interpretations.

General Rule — When Servicemember and Spouse are Living and Working in South
Carolina

A spouse will not be taxed in South Carolina on personal service income from services
performed in South Carolina if all of the following Federal Act requirements are met:

1. The servicemember and the spouse have the same state of domicile in a state other than
   South Carolina or

The servicemember is domiciled in a state other than South Carolina and the spouse
elects to use the servicemember’s domicile for income tax purposes; and

2. The servicemember is serving at a duty station in South Carolina in compliance with
   military orders; and

3. The spouse is living in South Carolina solely to be with the servicemember.

The examples below illustrate the application of these Federal Act requirements in determining
the spouse’s domicile and taxation of personal service income earned in South Carolina.

Note: For purposes of the examples illustrated in this advisory opinion, it is assumed that a
servicemember is stationed in South Carolina (or the applicable state) in compliance with
military orders and that the spouse is living in South Carolina (or the applicable state)
solely to be with the servicemember, unless otherwise stated.

PL. 115-407 (December 31, 2018).

!2 The election is effective for tax years beginning on or after January 1, 2018. Upon marriage, the spouse
may elect the servicemember’s domicile for the entire tax year.
13 50 U.S.C. Section 4001(a)(2)(B) and (c).

Example 1: Servicemember and Spouse have Same Domicile Outside of South Carolina.
Servicemember and spouse are both domiciled in Texas. Servicemember is stationed in South
Carolina in compliance with military orders. The Federal Act allows the servicemember and
spouse to retain Texas as their domicile. Spouse is working in South Carolina and living in South
Carolina solely to be with the servicemember. Since the Federal Act requirements are met, the
personal service income earned in South Carolina by the nonresident spouse is not subject to tax
in South Carolina.

Example 2: Servicemember and Spouse have Different Domiciles and Spouse Elects to Use
Servicemember’s Domicile Outside of South Carolina. Servicemember is domiciled in Texas.
Spouse is domiciled in South Carolina. Servicemember is stationed in South Carolina in
compliance with military orders. The Federal Act allows the spouse to elect to use the
servicemember’s Texas domicile. Spouse is working in South Carolina and living in South
Carolina solely to be with the servicemember. Since the Federal Act requirements are met, the
personal service income earned in South Carolina by the nonresident spouse is not subject to tax
in South Carolina.

Application of General Rule When Servicemember and Spouse are Living in a Border State or
Servicemember’s Duty Station is Located in a Border State (i.e., Georgia or North Carolina).

Note: States differ on whether the state where the duty station is located, the state where spouse
works, and the state where the servicemember and spouse are living must be in the same state. It
is the Department’s position that the Federal Act does not require the servicemember and the
spouse to live in the same state as the duty station or that the servicemember and the spouse live
in the same state in which the spouse works, provided the other requirements of the Federal Act
are met and the couple is living in a border state (i.e., Georgia or North Carolina) or the
servicemember is serving at a duty station in the border state. This interpretation is consistent
with the intent of the Servicemembers Civil Relief Act, as amended by the 2009 and 2018 Acts
and is illustrated in the below examples.

Example 1: Servicemember and spouse are both domiciled in a state not bordering South
Carolina (i.e., Florida). Servicemember is stationed in a border state (e.g., Georgia) in
compliance with military orders. The servicemember and spouse live in Georgia. Based on the
facts, the spouse is living in Georgia solely to be with the servicemember serving in compliance
with military orders. The Federal Act allows the servicemember and spouse to retain Florida as
their domicile. Spouse is commuting to South Carolina to work. Since the Federal Act
requirements are met based on the facts, the personal service income earned in South Carolina by
the nonresident spouse is not subject to tax in South Carolina.

Note: The answer would be the same if the servicemember and spouse lived in South Carolina
instead of Georgia, spouse worked in South Carolina, and the servicemember commuted to
Georgia to work in compliance with military orders.

Example 2: Servicemember and spouse are both domiciled in a border state (e.g., North
Carolina) and the servicemember is stationed in that border state in compliance with military
orders. The servicemember and spouse live in North Carolina. Based on the facts, the spouse is
living in North Carolina solely to be with the servicemember serving in compliance with military
orders. The Federal Act allows the servicemember and spouse to retain North Carolina as their
domicile. Spouse is commuting to South Carolina to work. Since the Federal Act requirements
are met based on the facts, the personal service income earned in South Carolina by the
nonresident spouse is not subject to tax in South Carolina.

Note: The answer would be the same if the servicemember and spouse live in North Carolina, the
servicemember is stationed in South Carolina in compliance with military orders, and the spouse
and the servicemember commute to South Carolina to work.

PERSONAL SERVICE INCOME OF SERVICEMEMBER’S SPOUSE EXCLUDED
FROM TAX

General Rule. If the servicemember’s spouse qualifies under the Federal Act, income earned
from personal services performed by the spouse is excluded from state income tax.

Personal Service Income of Nonresident Spouse Excluded from SC Income. For purposes of the
exclusion, income from services includes salaries, wages, tips, professional fees, and other
compensation received for personal services. If the spouse actively works in a sole
proprietorship, partnership, LLC taxed as a sole proprietorship or partnership, or an S
corporation, service income from these entities can be excluded. The income or loss from a sole
proprietorship, partnership, or LLC taxed as a sole proprietorship or partnership, or an S
corporation, will be considered personal service income if it is required to be included in the

computation of net earnings from self-employment for purposes of the federal self-employment
tax.

Taxability of Other Income of Nonresident Spouse. South Carolina does not tax a nonresident on
income that is sourced to the domicile of a taxpayer. For example, interest and dividends not
connected with the taxpayer’s business are not taxed in South Carolina if the spouse is domiciled
outside of South Carolina. See Code Section 12-6-2220(1) and (2).

If a spouse has rental property located in South Carolina, the spouse would still be taxed on that
rental income. See Code Section 12-6-2220(3). Similarly, any South Carolina business income
from partnerships, LLCs, or sole proprietorships that is not service income for the spouse will
need to be reported as income in South Carolina in the same manner that any nonresident
individual would report this income.

ADDITIONAL GUIDANCE

Below are points to be aware of when determining if the income earned from personal services
performed by the spouse or servicemember is excluded from South Carolina income tax.

Temporary Military Assignment Outside South Carolina. If a spouse has met the conditions
above for exclusion from income and the servicemember is temporarily assigned to another
state or outside the United States and the spouse remains in South Carolina (or a border
state), the exclusion will continue to apply as long as South Carolina (or the border state)
remains the servicemember’s permanent duty station. The income exclusion will no longer
apply if the servicemember’s permanent duty station is no longer in South Carolina (or a
border state) and the spouse remains in South Carolina (or a border state), and continues to
work in South Carolina.

Spouse Marries Servicemember During Tax Year and Elects to Use Servicmember’s
Domicile. If the servicemember and the spouse marry at any time during the tax year, the
spouse may elect the servicemember’s domicile for the entire tax year. If the spouse had
South Carolina income tax withheld on personal service income during the year of marriage,
the spouse may file a claim for refund as provided in Code Section 12-60-470 to receive a
refund of South Carolina taxes previously withheld.

Servicemember and Spouse Domiciled in South Carolina. If the servicemember and spouse
are domiciled in South Carolina, they are South Carolina residents and need to file a South
Carolina income tax return, even if the spouse and the servicemember are living and working
in another state.

Servicemember’s Personal Service Income. The exclusion rules under the Federal Act for
the servicemember and spouse are not the same. If a servicemember has a civilian job in
addition to his military job, the personal service income earned in South Carolina from the
civilian job is subject to tax in South Carolina. Under the Federal law, the personal service
income of the servicemember that is excluded from South Carolina income tax when a
nonresident servicemember is stationed in South Carolina is income earned from military
service.

DOCUMENTATION TO PROVIDE EMPLOYER TO PREVENT WAGE
WITHHOLDING ON PERSONAL SERVICE INCOME OF SPOUSE

Information to Provide to Employer. A spouse meeting the Federal Act requirements described

above must provide the following information to the employer:

ie

Form SC W-4, “South Carolina Employee’s Withholding Allowance Certificate” requesting
an employer to not withhold South Carolina income tax on the personal service income.

The servicemember’s most recent ““Leave and Earnings Statement.”

The spouse’s dependent identification and privilege card identifying the employee as a
military spouse.

Duration of Withholding Exemption. Form SC W-4 is an annual form. A new Form SC W-4

must be completed for each calendar year the spouse meets the Federal Act requirements for the

employer to not withhold South Carolina income tax on the personal service income. The
exemption from withholding expires on December 31, unless a new Form SC W-4 is completed.

In some instances, the Federal Act may first apply for South Carolina purposes to the spouse
during the tax year. This may occur when the servicemember is assigned to a permanent duty
station in South Carolina during the tax year or when the spouse marries the servicemember
during the tax year. In such instances, the spouse should provide Form SC W-4 on the date
employment begins or as soon as possible after the date of marriage. If employment continues
into the next year, a new Form SC W-4 is required to be provided to the employer by January 1
of each subsequent tax year.

Note: An untimely provided Form SC W-4 will result in the employer withholding South
Carolina income taxes from the spouse until a current SC W-4 is provided.

Employer Recordkeeping. The employer must retain the completed SC W-4. The employer must
verify the qualifying information on the leave and earnings statement and the dependent
identification and privilege card. If an employer believes an employee’s withholding exemption
certificate is incorrect, the employer shall furnish a copy of the certificate to the Department
within 30 days after it is received. Unless otherwise informed by the Department, the employer
shall withhold on the basis of the claimed exemption.'4

An employer is not required to retain copies of the military documentation that was verified, if
documented in the employer’s records.'* If copies of the documentation are retained, the
Department recommends that the employer strikeout any personal identifying information in
order to protect the privacy of the servicemember and spouse and avoid accidental disclosure of
information contained on these documents.

SOUTH CAROLINA DEPARTMENT OF REVENUE

s/W. Hartley Powell
W. Hartley Powell, Director

Junel6, 2021
Columbia, South Carolina

'4 Code Section 12-8-1030(A).

'S Section 701, Title 18 of the United States Code states that military ID cards may only be copied for authorized
purposes. A memorandum from the Office of the Undersecretary of Defense dated January 10, 2010 indicates that
copying the ID card to obtain tax benefits is authorized under DoDI (Department of Defense Instruction) 1000.13,
paragraph 6.1.7.