Establishing State Taxes to Comply with the Military Spouse Residency Relief Act

The Military Spouses Residency Relief Act (MSRRA) (Public Law 111-97) was signed into law on November 11, 2009. MSRRA allows the spouse of military personnel to withhold State and local taxes based on an address other than the duty station or residence address documented in the Payroll/Personnel System (PPS).

To meet the requirements for MSRRA, the National Finance Center (NFC) established Special Employment Program Code MS (Military Spouse Special Tax Processing) to identify an employee who is a spouse of a military person and meets the requirements for withholding State and local taxes based on an address other than the duty station or residence address. Special Employment Program Code MS allows NFC to accept a State tax document for any State, even if it is not the employee's duty station or address documented in PPS.

It is the responsibility of the employing Agency to verify the employee meets the criteria under MSRRA to withhold State taxes based on an address other than the duty station or residence address currently documented in NFC's PPS. There are no edits in NFC's PPS to validate this entitlement.

Personnel Document Processing

The Special Employment Program Code is a field created for use within NFC's PPS to ensure employees are paid and receive their benefits correctly during payroll processing. Although this field is not on the Standard Form (SF) 50, Notification of Personnel Action, for NFC's PPS payroll processing purposes, it is entered on the accession action via EmpowHR, Web-based Entry, Processing, Inquiry, and Correction System (EPIC Web) or Front-End System Interface (FESI).

Employing Agencies must process the actions for new hires, transfers, and reassignments containing MS in the Special Employment Program Code field prior to the processing of a new State tax document for an address other than the employee’s duty station or residence address currently documented in PPS.

Agencies should verify that the personnel action applied Special Employment Program Code MS to the employee’s personnel database record on the Information/Research Inquiry System (IRIS) Program IR122, SF 50 B Data Elements.

Correcting a Special Employment Program Code

When the employing Agency changes personnel history data through a history correction package, the history correction update removes the Special Employment Program Code MS from the employee’s personnel database record. Therefore, the employing Agency must again update the Special Employment Program Code with MS.

Although the Special Employment Program Code is established via the accession action in NFC's PPS, it is not appropriate to correct the data in an EPIC Web or EmpowHR history correction package when no SF 50 required data is changing. To update the Special Employment Program Code, the Agency must process an update action (Nature of Action Code (NOAC) 006, Update) to the last NOAC 006 in EPIC Web. The NOAC 006 cannot be processed in EmpowHR or FESI.

The following fields on the NOAC 006 must equal the same fields on the last applied action on the NFC's PPS database:

  • Agency
  • Personnel Office Identifier (POI)
  • Effective Date
  • Authentication Date

The Agency should verify that the NOAC 006 applied Special Employment Program Code MS to the employee’s personnel database record on IRIS Program IR102, Dates & Miscellaneous Salary/Personnel Data.

Tax Document Processing

The Agency should review IRIS Program IR105, State Tax, to determine the current State tax record. The Agency should submit a cancellation State tax document to cancel the current State tax record on the database when it is not the State for which the employee wants State taxes withheld.

To Cancel a State Tax Document:

  • Enter CAN in the Total Number of Allowances field in EPIC Web and EmpowHR
  • Transmit CAN in the State Tax Number of Exemptions data element in the FESI, State Income Tax Certification (140) record layout.

The Agency should then verify the State tax cancellation applied on IRIS Program IR105. A 0 (No) is displayed in the Duty Station Status field, and the Withholding State Code/Name field is blank on IRIS Program IR105.

After the erroneous State tax is canceled, enter a State tax document for the State for which the employee wants State taxes withheld.

Note: Multiple States such as Texas, Florida, and Nevada do not have State taxes; therefore, it isn’t necessary to process State tax documents.

When the current State tax record is not canceled and another State tax document is processed, dual State tax records are created (e.g., NFC's PPS collects taxes for two States).

Recalculation of New State Tax Rate

When an employee has State taxes withheld based on a residence address or duty station prior to the processing of the State tax document for which the employee wants State taxes withheld, the employing Agency may submit a request through the Web-based Special Payroll Processing System (SPPS Web). The Agency may request:

  • To have the previously withheld taxes recalculated at the new State tax rate and transferred to that State
  • When applicable, a refund of an overpayment