While nothing can truly compensate for the dedication our military men and women give our country, there are a few tax benefits people in the US Armed Forces get from Uncle Sam as a way of saying ‘thank you’ for your service. Too often these benefits go unused because almost no one has less time to research tax benefits than military personnel, especially if they are not working with a tax professional knowledgeable in this area.
If you or a member of your family is part of the US Armed Forces, make sure your tax professional knows the cost saving benefits accorded to military personnel. The Law Offices of Nick Nemeth, PLLC provides a high-level breakdown for you.
Extension in Tax Filing Deadlines
The deadline to file tax returns, filing claims for refund and paying taxes is automatically extended for 180 days if:
- You serve in the armed forces, in a declared war zone.
- You serve in the armed forces for deployment outside the US away from your permanent duty station while participating in an emergency operation.
- You serve in a war zone in support of armed forces such as accredited correspondents.
In addition, spouses of individuals who served in a war zone or offshore emergency operation also qualify for the provision.
Exclusion of Combat Pay
If you are a member of the US armed forces serving in a combat zone, your compensation includes non-taxable combat pay. It means you don’t need to include combat pay in the gross income on Form W-2 – a.k.a. Wage and Tax Statement. You can exclude combat pay if:
- You serve in a war zone that the US President designates in an executive order.
- You serve in a qualified dangerous duty area designated by congress while receiving enemy fire pay in agreement with 37 USC 10.
- You serve in a region outside war zone and Department of Defense certifies that your service is in direct support of military operations in a war zone.
Utilization of Earned Income Tax Credit
Combat pay is non-taxable, and therefore, you don’t need to report it for Earned Income Tax Credit (EITC). You can view the amount of your non-taxable pay on your Form W-2, in box 12 with code Q. You and your spouse, however, may also opt for inclusion of combat pay in your gross income for EITC. It might reduce the amount of your tax burden or help you get a higher refund.
Deduction of Travel Expenses
If you are a member of the US Armed Forces, you can remove unreimbursed travel expenses if they happen during your travel away from home. The term “home”, in the current context, implies your permanent duty station, such as a base or ship. The expenses include transportation cost, laundry, and business phone calls, while you:
- Travel from one place to another, 100 miles or more away from home.
- Attend a work-related conference away from your permanent duty station.
Deduction Related to Uniform
All members of the US military must wear uniforms whenever they are on duty, but may also be required wear them during off hours, you can typically deduct expenses which were not reimbursed for their cost and upkeep. These include:
- Utility and military dress uniforms
- Uniforms for reservists
- Objects that can’t be replaced by regular clothing (Corps devices, swords, insignia of rank, etc.)
Deduction of Expenses Related to Education
Military personnel can remove unreimbursed cost of qualifying education that relates to their work, if it fulfills any of the two criteria defined by the IRS. These are:
- If a certain law or employer mandates the education to sustain the current job or salary.
- If the education sustains or develops skills required for existing work.
No Tax Payment on Profits from Sale of Home
Profits from the sale of the main residential property may be tax-free for the members of the US Armed Forces. In 2014, you could discount up to $250,000 of profit from the sale of a house; however, you can’t remove a loss from the sale of your main residence.
Nullification of Tax Liability
Tax obligation is forgiven, or if already paid, refunded, if a member of US Armed Forces dies:
- During active service in a war zone
- Due to any disease or wounds received while being posted in a war zone
- Due to wounds received during a terrorist attack
Limit on Interest Rates
Regardless of the amount of liabilities you accumulated before joining the military, you can’t be charged more than 6 percent per year. This reduction in rate applies only if your service significantly upsets your capacity to pay. However, the reduced rate applies only during the period you are in active service.
Penalty-Free Retirement Plan Withdrawals
If you’re serving in the military reserves, you might be able to take early withdrawals from IRA and 401(k) accounts without having to bear any penalty. To qualify for this exemption, you must have been called to active duty after Sept. 11, 2001 for more than 179 days, and you must make the withdrawal while you are on full-time, active duty.
For more info, visit IRS Armed Forces’ Tax Guide (Publication 3) on www.irs.gov.