A revised version of this post was published on Jan. 27, 2021.
When you're in the military, taxes are likely far down on your list of concerns.
Members of the military, however, bear the same tax responsibility as do all U.S. citizens.
The one bit of good tax news here is that the tax code and Internal Revenue Service take into account the special circumstances that armed services personnel face.
Here are some tax highlights for military taxpayers.
Affected armed forces: Military tax benefits typically apply to active duty or reserve members of the armed forces. The eligible forces are:
- United States Army (including Army Reserve and Army National Guard)
- United States Navy (including Navy Reserve)
- United States Air Force (including Air Force Reserve and Air National Guard)
- United States Marine Corps (including Marine Corps Reserve)
- United States Coast Guard (including Coast Guard Reserve)
Recently retired or separated members may also be eligible for benefits.
Service abroad means more filing time: If you're stationed in the United States, your tax returns are due on April 15. If, however, you're posted overseas, like other U.S. taxpayers living abroad you get two more months — until June 15 (or the next business day if that falls on a weekend) to file your taxes.
And if you're deployed to a combat zone, Uncle Sam definitely doesn't want you worrying about your taxes. In these hostile situations, tax deadlines automatically are extended, both for military personnel and those posted there to directly support these operations.
The deferral for combat zone service ranges from 60 days to up to 180 days after the end of their active service in the zone. It covers not only filing of forms, but also the payment of any due tax.
Your command will notify the Internal Revenue Service of your deployment so that you can receive the automatic federal tax return extension. Double-check that the IRS does have your correct combat information by e-mailing firstname.lastname@example.org with your name, stateside address, birth date and date of deployment.
And when you do file, you may still want to write "COMBAT ZONE" in red on top of your tax return.
More combat considerations: Being in the line of fire means you get added combat pay. Uncle Sam, however, gives enlisted service personnel, warrant officers and commissioned warrant officers a tax break here.
These military members don't have to include active duty combat pay as income for tax purposes.
The IRS also allows a similar tax exclusion for imminent danger/hostile fire pay; re-enlistment bonuses if voluntary re-enlistment occurred during a month while serving in a combat zone; pay for accrued leave earned while serving in a combat zone; and pay while hospitalized as a result of your service in a combat zone.
Commissioned officers also are allowed to exclude part of their combat pay, but that amount is capped.
Earned Income Tax Credit choice: Not owing tax on combat pay is a welcome benefit in most cases. However, sometimes a little extra could help out and not just for covering day-to-day expenses.
Whey you claim the Earned Income Tax Credit (EITC), you want enough earned income to get you the most benefit allowed by this tax break. In these cases, EITC-eligible military members can opt to include combat pay amounts for purposes of figuring the tax credit.
As with other tax situations where you have a choice, military taxpayers should calculate their taxes both with the nontaxable combat pay as earned income and without the nontaxable combat pay as earned income to find out what's best for you. Check the IRS' webpage for this special EITC situation and other factors to consider when considering combat pay in the claiming of this refundable tax credit.
Residency and state taxes: Military members also must deal with state taxes. That can be complicated and confusing when your service means you are deployed around the country.
The Servicemembers Civil Relief Act provides protections in this regard. Active-duty service members can file state income taxes in their state of legal residence. They are not required to change their legal residence when they move to a new state solely due to military orders. They may maintain their legal residence in a state where they have previously established it.
The Military Spouse Residency Relief Act (MSRRA), which became law in 2009, allows military spouses to keep the same state of residency as that of their military spouse, regardless of which state they currently reside. In addition, the Veterans Benefits and Transition Act of 2018 amended the earlier military spouse residency law to allow husbands and wives to choose the same state of residence as their service member for tax filing and voting purposes, regardless of whether they have ever lived in the state. Prior to the 2018 change, spouses could only claim the same state of residence if they and their service member were from the same state.
For example, notes Army Capt. Capt. Thomas Sandbrink of the Fort Knox Tax Center, a Texas service member marries a spouse from North Carolina. When they moved to Fort Knox, the service member could continue claiming Texas residency under the Servicemembers Civil Relief Act, but the spouse's income would be taxed to Kentucky, requiring the couple to file separate state returns. Under the new law, both are able to claim Texas.
Home-sale profit tax exclusion extended: Most homeowners know that the sale of their homes is one of the best tax breaks around. If you meet some relatively easy eligibility rules, you don't owe any tax on profits of up to $250,000 if you're a single home seller or double that for married couples who sell a residence.
How long you've owned and lived in the home help determine whether you get this primary home sale capital gain tax exclusion. Generally, you must have owned the house for at least two years and lived there for at least two of the last five years. While that's not a problem for most civilian homeowners, military members tend to be more mobile and with little control over their departures. In these relocation situations, service personnel get some leeway.
Tax law allows for home qualified active duty sellers facing an ordered Permanent Change of Station (PCS) to suspend the ownership and residency period when you’re on qualified official extended duty. IRS Publication 523 has details and examples of how this works.
Military moving tax break: Military personnel still are allowed to deduct unreimbursed moving expenses related to PCS transfers. True, the Department of Defense usually covers most of these expenses for service members. Sometimes, however, there are unreimbursed expenses and service personnel, unlike civilians who move, still can deduct them.
Reservists travel deduction: For non-permanent travel, military reservists whose reserve-related duties take them more than 100 miles away from home, each way, get a tax break, too. They can deduct these unreimbursed travel expenses. They must file Form 2106 to do so, but that amount then is listed on Form 1040's Schedule 1. There's no need to itemize to claim these military-related costs.
More military tax resources: These are just a few quick hits of military tax considerations and potential tax breaks.
You can find more in the IRS' recently updated Publication 3, Armed Forces' Tax Guide. It covers the special tax situations of active members of the U.S. military.
You also should check out the information and help available at Military OneSource, a program offered by the Department of Defense. It provides a range of free resources, tax and otherwise, for military members, veterans and their families.
You find Military OneSource services at its website, at MilitaryOneSource.mil. If you prefer, you can call the service toll-free at (800) 342-9647.
Military tax filing options: When it comes to filing your return, check out MilTax, Military OneSource's tax service. It provides online software to electronically file a federal and up to three state tax returns for free, regardless of income.
Military personal also can review the offerings at Free File. This IRS-private tax software industry partnership allows taxpayers to prepare and e-file their taxes for free. Military filers and their families who meet the $69,000 adjusted gross income limitation may choose from nine companies without regard to additional eligibility requirements. To access this option, head directly to IRS.gov/freefile.
If you prefer more personal help with your taxes, there are free face-to-face tax preparation services are available thanks to IRS-certified volunteers. These Volunteer Income Tax Assistance participants offer free tax return preparation and e-filing to those who earned less than $56,000 in 2019.
VITA services are found on many large military installations worldwide. Military.com's Base Guide can help you contact your local installation for more information about tax centers, hours of operation, scheduling appointments and necessary documentation.
I hope this overview helps alleviate some of your concern about meeting your tax responsibilities while simultaneously fulfilling your service obligations to our country.
Thanks for your commitment and sacrifices and good luck with your taxes!
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