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Military Spouses Residency Relief Act (MSRRA)

The Military Spouses Residency Relief Act (MSRRA) (Public Law 111-97) was signed into law on Nov. 11, 2009. This new law is effective for taxable year 2009. The MSRRA allows the same residency benefits permitted to military personnel under the Servicemembers Civil Relief Act (SCRA) to also apply to a military spouse's nonmilitary service income, under certain circumstances.

The MSRRA prohibits a servicemember's spouse from either losing or acquiring a residence or domicile for purposes of taxation because he or she is absent or present in any U.S. tax jurisdiction solely to be with the servicemember in compliance with the servicemember's military orders, if the residence or domicile is the same for the servicemember and the spouse. The MSRRA also prohibits a spouse's income from being considered income earned in a tax jurisdiction if the spouse is not a resident or domiciliary of such jurisdiction when the spouse is in that jurisdiction solely to be with a servicemember serving under military orders.

Military spouses who fall under this law should file Form 740-NP Kentucky Individual Income Tax Nonresident or Part-Year Resident Return to request a refund of the Kentucky income tax withheld from his or her pay. The income would not be reported as taxable on the Kentucky income tax return. To assist the department in identifying those returns, please write across the top of the return MILITARY SPOUSE. For 2010, those military spouses should file a new Form K-4 with his or her employer to claim the exemption from withholding of Kentucky income tax. The updated K-4 Form will be available on our Web site by Dec. 11. Please address any further questions to the Taxpayer Assistance Section at (502) 564-4581.



Military Pay Income Tax Exemption

Effective for taxable years beginning on or after Jan. 1, 2010, all military pay received by active duty members of the Armed Forces of the United States, members of reserve components of the Armed Forces of the United States, and members of the National Guard will be exempt from Kentucky income tax. KRS 141.010(10)(u)

Soldiers will claim the exemption by excluding military pay when filing a Kentucky individual income tax return starting with the 2010 return, due on April 18, 2011.  Provided the military member has no income other than military pay, he or she would not be required to file a Kentucky income tax return.  The military pay exemption applies to all Kentucky military members regardless of where the member is stationed.  Kentucky income tax should no longer be withheld from checks received for military pay, beginning Jan. 1, 2010.  If Kentucky income tax is incorrectly withheld from a soldier’s military pay in 2010 and after, the Department of Revenue will refund the tax withheld.



In determining the correct members of an affiliated group please consider the following:

  • All members of the group, including the parent entity, must have nexus in Kentucky.  The parent and all included affiliates, as separate entities, must be  “doing business in Kentucky” as defined in KRS 141.010(25).


  • If the parent entity has not established nexus in Kentucky then each affiliate that has established nexus in Kentucky must file a separate entity return.


  • If the parent entity is in a current Kentucky eight-year elective period, it must continue to file an elective consolidated return until the expiration date of the elective period.  If the elective period expired on or after December 31, 2004 a new elective period cannot be adopted.  A nexus consolidated return must be filed for 2005 and all subsequent years, for parents and affiliates with nexus in Kentucky.



Please note the following when filing a mandatory nexus consolidated return:

  • The NOL adjustment is reported on the return as the “Current net operating loss   adjustment” (Form 720, Part III, Line 19), and is deducted from, or added to, the pre-apportioned “Net income”.


  • The “Prior year NOL carryforward” on the Schedule NOL is a pre-apportioned number.  An election can be made to use an apportioned carryforward by checking the box at the top of the Schedule NOL.  If the election is made to use an apportioned carryforward, the adjustment is still deducted or added from the pre- apportioned “Net income.”


  • There is a 50 percent limitation for the deduction of the includible corporations’ current year’s losses.  The amount of includible corporations total losses deducted for the year shall not exceed 50 percent of the income realized by the remaining includible corporations that did not realize a current year net operating loss. KRS 141.200(11)(b). 



Last Updated 2/8/2016