Courtesy of Spidell (paraphrased a bit for national coverage)
As a result of the Military Spouses Residency Relief Act (PL 111-97), beginning with the 2009 taxable year, states may not tax wage and personal service income of a military spouse if the spouse has the same domicile or residence as the servicemember and:
· The military spouse chooses to retain his or her domicile in the home state;
· The military servicemember is stationed in a state other than his or her domicile; and
· The spouse is absent from his or her domicile to join the active duty servicemember spouse, who is at a military duty station under military orders.
This federal preemption means that qualified spouses are not taxed by the state they live in on wage and certain other income, and may immediately stop state income tax withholding on wages and may stop making estimated tax payments on income from services. Note: Any nonmilitary pay of the military servicemember continues to be taxable.
This new law is a result of the federal Military Spouses Residency Relief Act (P.L. 111-097) signed by the President on November 11, 2009.