Military Tax Benefits

You have sacrificed your youth, precious time, and the warmth of family to keep not only Americans, but at times citizens from across the world safe. You deserve more than admiration and gratitude. It’s that time of the year, when we honor our veterans. Since its almost Veteran’s Day, so let’s discuss some of the tax benefits for the U.S. military forces. Some types of pay are not taxable. And special rules may apply to some tax deductions, credits and deadlines.

These rules apply to all branches of U.S. Armed Forces, whether they are National Guard, Reserves, or Active Duty:

• Filing tax returns late

Service members have up to the later of 180 days after returning from a combat zone deployment, or combat related hospital stay, to file tax returns without late penalties or interest. Military members have until June 15th to file returns if they are overseas and not in a combat zone.

• Combat Pay Exclusion

If you serve in a combat zone, certain combat pay is not taxable. You won’t need to show the pay on your tax return because combat pay isn’t included in the wages reported on your Form W-2, Wage and Tax Statement. Service in support of a combat zone may qualify for this exclusion.

• Qualified Reservist Distributions and Repayments

Reservists who are called into active service, may be able to take distributions from retirement accounts (IRA, 401K, TSP, etc.) without penalty and may also repay any distributions taken, even if the repayment exceeds the annual IRA contribution limit. This is like borrowing from a 401K and paying it back. Certain conditions apply, ask Azmoneyguy or your tax professional.

• Selling a Home for tax purposes and getting the Capital Gain Exclusion

Time deployed counts for the five-year living at the same address rule, to help sell the home and avoid Capital Gains. You must live in your home 2 of 5 years to get Capital Gains Exclusion.

• Overnight Travel Expenses for National Guard and Reserve members living more than 100 miles from duty station

This deduction is on the front of the tax return, and no itemizing is required. This allows you to write off travel, lodging, and meal expenses.

• Deductions for Uniforms, Equipment and Laundry

You can write off uniforms you purchase, or any repairs made to them, as well as the cost of laundering the uniforms, plus any military equipment you purchase for your use. There are special rules that allow military personnel to even deduct the cost for laundry and haircuts, if away from home for less than one year on temporary duty.

• Some states offer little or no state tax on military members and spouse’s earnings

Arizona and many other states have no tax on military pay, and no tax on the spouse’s earnings either. You can claim residence in any state if you are on active duty in the military. For instance, you can be stationed in Ft. Huachuca, Arizona and still claim a Nevada residency. This means you would not have to prepare an Arizona tax return, if you are active military. This would allow you to not pay state taxes to the State of Arizona even while you are stationed and living in Arizona. This also counts for vehicle registration tax. Be sure to check on the laws of the state you are living in for your situation with Azmoneyguy or your tax professional. 

• Military allowances are tax-free

Some examples of allowances would be Clothing Allowance, Family Separation Allowance, Base Housing Allowance, Per Diem Allowance, and Temporary Duty Allowance. These are all monies that are given to you in addition to your regular payroll that is not subject to tax.

• Forgiveness of tax upon Death

Current year, previous year and unpaid taxes are forgiven and/or refunded when military members die, if they are active duty during either a terrorist event, in a combat zone, or in support of a military combat action.

• Earned Income Tax Credit (EITC)

If you get nontaxable combat pay, you may choose to include it to figure your EITC. You will make this choice only if it increases your credit. Even if you do, the combat pay stays nontaxable.

• Signing Joint Returns

Both spouses normally must sign a joint income tax return. If your spouse is absent due to certain military duty or conditions, you may be able to sign for your spouse, by attaching a copy of the military combat orders. In other cases when your spouse is absent, you may need an IRS power of attorney to file a joint return.

• Moving Expenses

Members of the military still get to take a deduction for the out of pocket costs of moving household goods and family members, to include pets, for any costs not already paid for or reimbursed by the military.

Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331 and on all social media under azmoneyguy.

Be more prepared for this year’s tax season! Get your copy of Bob’s NEW book, 52 Ways to Outsmart the IRS, Weekly Tax Tips to Save You Money on Amazon, Kindle, or at Azmoneyguy.com (available in paperback and eBook).

Related Blog Posts