I was a senior in high school when my older brother joined the military. My little brother signed up a few years later. Today, my brothers are two of the 18.8 million military veterans currently living in the United States.
Military families face a special set of challenges all year round – and that doesn’t get any easier at tax season. The tax rules that apply to current and retired military can be somewhat confusing. Here’s a quick look at what you need to know:
- For federal tax purposes, the U.S. Armed Forces includes commissioned officers, warrant officers, and enlisted personnel in all regular and reserve units under control of the Secretaries of the Defense, Army, Navy, and Air Force. The U.S. Armed Forces also includes the Coast Guard. The U.S. Armed Forces does not include the U.S. Merchant Marine or the American Red Cross.
- Combat pay is partially or fully tax-free. Service members serving in support of a combat zone may also qualify for special tax benefits. In the event an area ceases to be a combat zone, the Internal Revenue Service (IRS) will do its best to notify affected taxpayers since the relief provisions will end at that time.
- Tax deductions may be available to reservists whose duties take them more than 100 miles from home – even if those taxpayers don’t itemize. Those expenses are treated as an adjustment to income and included on line 24 of a form 1040 (as opposed to a miscellaneous itemized deduction on a Schedule A).
- The Earned Income Tax Credit (EITC) may be worth up to $6,269 for low-and-moderate-income service members. A special method can be used to figure the credit for those who receive nontaxable combat pay. For a look at 2016 rates, including EITC info, click here. For a look at 2017 rates, including EITC info, click here.
- An automatic extension to file a federal income tax return is available to U.S. service members stationed abroad. Additionally, members of the military and others serving in combat zones or hazardous zone areas generally have until at least 180 days after they leave the zone to file returns and pay any taxes due – that’s a change from the “normal” extension rules which only extend the time to file and not the time to pay. For more on tax extensions, click here.
- Typically, to deduct moving expenses, you must meet certain time and distance tests. However, if you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you do not have to meet these tests: you can deduct your unreimbursed moving expenses on a form 3903, Moving Expenses (downloads as a pdf).
- Both spouses normally must sign a joint income tax return but if one spouse is absent due to certain military duty or conditions, the other spouse may be able to sign for him or her (a valid power of attorney is required in other instances). For more on signing a tax return, click here.
- Federal income tax bills can be forgiven, or, if already paid, refunded, if a member of the U.S. Armed Forces dies while in active service in a combat zone; from wounds, disease, or other injury received in a combat zone; or from wounds or injury incurred in a terrorist or military action.
- Veterans’ benefits paid under any law, regulation, or administrative practice administered by the Department of Veterans Affairs (VA) are completely excludable from taxable income. For more on tax and Veterans Benefits, click here.
The Internal Revenue Service (IRS) has a special page on their website with tax information for members of the U.S. Armed Forces, found here. There’s also IRS pub, Publication 3, Armed Forces’ Tax Guide, (downloads as a pdf) available to help service members and their families make sense of tax benefits that might be available. It’s worth noting that Pub 3 focuses on active members of the U.S. Armed Forces and does not cover military pensions or veterans’ benefits.
For more information on government benefits available to active and retired members of the military and their families, click here.
If you need assistance during tax season, most military bases offer free tax preparation and filing assistance. Be sure to ask!
