Active Duty - Oregon Tax Return Questions

[medli]

Hello All. Looking for some sanity checks on my 2022 state tax return. I am active duty and serving out of state (Oregon, home of record). I have not bothered to file the tax exemption forms since I joined so Oregon withdraws every month. Up until recently my wife and I have just filed as Residents and then claim all W-2 income under 319 "military pay" which effectively lowers our income to $0 not counting some basic interest income. We would then be returned all of the previously paid taxes. Good to go.

Well in 2022 I cashed out an investment I had which returned a net gain around $48K ( i was issued a 1099-B for this). I started filing state taxes like usual, as Residents, then claimed my Military Pay which left us with an estimated $0 return (they now keep the ~$3K paid throughout 2022, due to the reported capital gains I guess). We're bbviously miffed at not getting the money back so I started reading into Active Military and Oregon returns and came across some information which makes me second guess the whole Resident vs. Nonresident status we've been claiming.

https://www.oregon.gov/dor/programs/individuals/Pages/military.aspx

Residents stationed outside Oregon​

You're a nonresident for Oregon tax purposes if you meet all the following requirements:

• You didn't have a permanent residence in Oregon for yourself or your family during any part of the tax year.
• Your permanent residence was outside of Oregon during the entire tax year.
• You spent less than 31 days in Oregon during the tax year.

You'll only owe Oregon tax if you had income from other Oregon sources. If you have to file a return, use Oregon Form OR-40-N.

My family and I meet the criteria above so should we have been filing as non residents this whole time?

When I trialed the change from Resident to Nonresident in H&R block, my return went from nothing to essentially the entire $3K I had paid over the year because 1. Military Pay still... and 2. it no longer counted the capital gains since it was earned outside of Oregon.

Obviously this is ideal for my family but is this a correct understanding of Oregon tax law and if so, do I now need to refile my previous taxes?

Note: my drivers license still reflects the address from my Home of Record. However it is not my residence, no mail is sent there and of course I have not visited Oregon in years.

 

[raymo]

@medli You should always expect a tax bill when cashing in investments.

 

[greynolds]

@medli Oregon resident here living in VA. Yes following their rules Oregon doesn't tax military pay if you aren't physically present in the state and you do indeed file the non-resident form.

Funny enough I have an Oregon drivers license but a Virginia address on it! Still vote in their elections too.

You should get back all your state tax withholding and are able to stop state tax withholding all together from your checks if you are not intending to be present in Oregon this year.

I never got around to fixing the non withholding so I just get all my state tax withholding back each year about 5k this year O3 with 6 years in.

 

[antevasin]

@medli First big question- did you change your state of residency to somewhere else? The nonresident rules are different for military and spouses. I recommend switching to read about those directly. Military orders to a different state does not mean you are a resident of the new state. If you no longer claim Oregon, you have to claim residence somewhere else and follow their tax laws.

 

[kristen69]

@antevasin This is not true for AD military. You do not have to become a resident of the state in which you are stationed in. In fact, he can claim non-resident for both. For his current state, he may have to file some sort of form to exempt himself & his spouse.

 

[kristen69]

@medli I am a professional tax preparer, who has seen this many times, and yes, when filing taxes (for tax purposes) you want to choose "non-resident". Think of it this way; you still have to file the return, but where do you actually live? If you aren't an official resident of where you currently live you are a "non-resident" there as well. I hope that makes sense. Tax definitions/purposes are different and most states have a clause to exempt AD military pay since you did not, in fact, earn income in that state. Capital gains should not be taxed from the state unless you owned and sold that asset in that state, and even then there are other circumstances that may apply that have nothing to do with the state.

It's not difficult to do an amended tax return for previous years, if you think you'll get a significant amount back it might be worth it. It seems like this year was different though and nothing much was affected before.

I saw a few states changed their definitions of residence vs. non-resident this year as well. If in doubt, find a free tax service nearby and get a second opinion.

 

[medli]

@kristen69 Thank you for the response, I know this is a couple days late but I just back onto Reddit.

I will for sure file as non-resident this year. The stock was bought, owned and sold entirely while I was not living or working in Oregon.

You're right about the outcome of amending taxes for previous years not changing the outcome of my returns. I have historically always received 100% of taxes paid back from Oregon.

My only hangup now is whether amending previous taxes is the *legal* move.

I'm stationed overseas FYI and access to a professional tax service specific to the U.S. is limited.

 

[kristen69]

@medli No, it seems like you're fine for previous years. It's probably different this year because Oregon changed something. You're not going to get audited or anything like that.