CA state tax question - Can I subtract my wife's military salary?

What is the name of your state? CA

I was married in May 2003 and we have a son born in 2003. My wife is an active duty in Air Force. She was stationed in Texas until Sept. 2003 - then she moved to California in Sept. 2003.
While preparing the state tax using TaxCut, I have found the following information:

Military pay is taxable in California only if the military member is a resident of California and stationed in California. Generally, for tax purposes, a military member is a resident of the state from whichhe or she entered the military.

So I would like to know if I can subtract my wife's salary from our total gross income.

My wife and I have about 110K gross income for year 2003. I paid $9202 as state tax. My wife has 43,000 as gross income last year as an active duty officer in military. In her W2 form, she has both Texas and California in box 15: She paid $236.90 for CA, and 0 for TX. I am guessing the CA state tax is based on her income from Sept. 2003 - Dec. 2003 - she moved to CA in Sept. 2003 from Texas.

Few things about my wife's status:
- She moved to Texas in June 2002 from Arizona.
- She has both Texas driver's license and voter's registration card. She had these either in late 2002 or early 2003. With these documents, I believe you can claim yourself as the residence of TX.
- She had California state residence status in her W2 form until Dec. 2003 - meaning CA was listed in her W2 form. She changed this to Texas in Dec. 2003 - I don't know why she didn't do this earlier...

Question: Does she have to file California state income tax? Because if she doesn't have to, then we can subtract her salary ($43,000) from our total gross income ($110,000) - thus we only need to pay state tax based on about $66,000. This will give us about $7000 more state tax refund.

Thank you for any info.

[Snipes5]

She will have to indicate to the FTB that she was NOT a resident of California for tax purposes, or any other purpose except military assignment.

When you do this on the tax return, it should exclude her income, but you can also list the CA taxes withheld, so you can get them back.

A pox on the stupid moron at her servicing personnel unit who listed her state of residence as CA. That should NEVER have happened, but can't be undone, only corrected, which apparently she took care of.

Make sure your return is done correctly. I strongly suggest you visit an Enrolled Agent located in an area where there is a lot of military, so the EA will have dealt with this before.

Don't delay. The FTB is evil. They will get you, and your little dog too.

If you can't readily find an EA, every H&R Block office has at least one.

Snipes

What state did she enter the military from? If she still has the TX driver's license, and is still registered to vote in TX, she can probably claim to still be a legal resident of TX. Thus her income shouldn't be taxable by California. You have to be careful with California, though, because they're one of the states that technically doesn't tax nonresident military income, but DOES take that income into account in calculating how much tax the resident spouse must pay. Basically, since your income is 61% of the total, you are only allowed to use 61% of applicable exemptions and credits, making the tax rate on your income effectively higher. This is illegal under the latest revision of the Servicemember's Civil Relief Act. California is working on a fix, but will accomplish it via legislation, which may take a while. When that's done, you'll be able to apply the entire amounts of any exemptions and credits you're eligible for to your income alone. In the meantime, you can either wait to file (it may take longer than April 15 so you may need an extension) or file now and file an amended return later to get an additional refund.

If you haven't yet filed using TaxCut, why not check out your base's tax center? They'll complete and e-file your tax returns for free. You can even print out your return as computed by TaxCut and bring it with you to see which comes out better (make sure you figure out the reason for any difference before deciding to file though). What base is she stationed at?