Tax Tips for Military Personnel

As members of the military, you're entitled to tax breaks based on a number of different factors. The list below contains important tax tips for military personnel.

Photo by Kevin Morris on Unsplash

Military life can be complicated, and so can handling finances in the military, including your taxes. But by understanding items like your gross income, moving expenses, and other miscellaneous deductions, you can make filing your return easier.

For complete details, check out the IRS's Armed Force's Tax Guide. Below are some tips for military personnel.

Understanding Gross Income

Your pay in the military can vary depending on a number of different factors, and as a result, so can your gross income. The national guard pays differently than others. The gross income of military personnel is comprised of the following categories, with examples of in each.

  • Basic Pay
    • Active Duty
    • Attendance at a designated service school
    • Back wages
    • Reserve training
  • Special Pay
    • Foreign duty
    • Medical and dental officers
    • Special duty assignment pay
  • Bonus Pay
    • Career status
    • Overseas extension
    • Reenlistment
  • Incentive Pay
    • Submarine
    • Flight
    • Hazard Duty
  • Other Pay
    • Accrued leave
    • High deployment per diem
  • In-kind Military Benefits
    • Personal use of a government-provided vehicle

As you can quickly see, depending on your status, rank and assignment, your earned income can varying greatly.

If that weren't confusing enough, there are a number of items which are excluded from your gross income:

  • Combat pay
  • Other pay
  • Death allowances
  • Family allowances
  • Living allowances
  • Moving allowances
  • Travel allowances
  • In-kind military benefits

We will look at some of these items individually below. As always, refer to the IRS's Armed Force's Tax Guide for complete listings and their definitions. 

Understanding Combat Pay

First of all, let's define combat pay. The IRS recognizes your combat pay as an exclusion to your gross income. As written in the Armed Forces Tax Guide, combat pay is defined as:

"Pay received by a member of the U.S. Armed Forces who serves in:

  1. A combat zone as designated by the President in an Executive order
  2. A qualified hazardous duty area designated by Congress while receiving hostile fire pay or imminent danger pay
  3. An area outside the combat zone or qualified hazardous duty area when the Department of Defense (DOD) certifies that such service is in direct support of military operations in a combat zone or qualified hazardous duty area, and the member receives hostile fire pay or imminent danger pay"

It's also important to note that a partial month service is treated as a full month of service. This means that if you serve in a combat zone during as few as one day, you're entitled to a combat pay exclusion for that month in which you served.

While combat pay is not a part of gross income, you do include it when calculating your limits and deductions on contributions to IRAs.

Scratching your head? Don't worry. 

Combat pay should be properly reflected in box 1 of your Form W2. But you'll need to know the definition to make sure it's accurate before filing. 

Understanding Travel Expenses

Deducting travel expenses, like most examples listed among these tax tips for military personnel, depends on a number of factors.

For example, travel expenses differ depending on if they are related to a move or if they are related to business. Let's discuss the latter as it pertains to Employee Business Expenses. 

For unreimbursed travel expenses, you are allowed to claim expenses for your car travel, meals, and lodging. For car travel, you should use the current standard mileage rate of 53.5 cents per mile.

As for travel pertaining to moving, your standard mileage rate is lower, 17 cents per mile. However, you do have the option of deducting all actual out of pocket expenses.

Additionally, Armed Forces Reservists can deduct travel expenses when traveling more than 100 miles away from home in connection to their services. It's a good benefit of being a military officer.

Understanding Moving Expenses

Speaking of moving, being an active duty military personnel entitles you to tax breaks based on your moving.

To take advantage of this tax tip for military personnel, you  can automatically qualify for eligibility should you meet the following requirements:

  1. You are a member of the Armed Forces on active duty.
  2. You move because of a permanent change of station. 

These deductions cannot include any services or allowances provided by the government. But, you're able to claim those for travel (as mentioned above) and for moving household goods and personal effects. This includes the service to transport these items like packing, crating, storage and insurance. 

However, items bought during the move are ineligible.

Understanding Extensions for Filing

One underidentified tax tip for military personnel is using extensions.

There are varying rules and requirements to meet for getting an extension, but generally speaking everyone is eligible with some work on their part.

First of all, you'll want to pay particular close attention to your window for filing should you be in a combat zone. As your service is important to your country, you are given a 180 day window after your return. This window applies to current returns and those you were unable to file while serving in a combat zone. This rule applies similarly to a qualified hospitalization.

If you are not in a combat zone, you can receive an extension by filing Form 4868 or making partial payment of your expected tax due. This extension applies only to members of the military currently in the United States. 

For those outside the United States and Puerto Rico, you can qualify for an automatic 2-month extension and file a Form 4868 for an additional 4 months.

Understanding Where to Get Help

If you found this list of tax tips for military personnel confusing, you'll probably want to sit down with an expert. Most military bases offer free tax preparation services during tax season, and some offer services year round.

In addition to that, complete information can be found in the IRS's Armed Forces' Tax Guide. That guide provides much more detail than outlined in this list, and it gives you insight in how to interpret your W2. 

Final Thoughts on Tax Tips for Military Personnel

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First, you're going to want to make sure your W2 is accurate. With the number of active duty military personnel receiving documents each year, it's possible that your information could have been misinterpreted.

Perhaps the most important and confusing item can be the separation or inclusion of combat pay.

Serving in a combat zone changes the nature of your return, creates differences in gross income, and allows for extensions on returns during your service.

Last, be sure to keep track of expenses you incur while moving or traveling that are not reimbursed.

With these details in order, you'll be filing with ease in no time.

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