Income Tax Tips for Military Families

By Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension 

At the height of income tax filing season, it is appropriate to examine special tax benefits for military families. Military personnel and their families face unique life challenges with their duties, expenses, and transitions and, because of this, the following special tax benefits are available:

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U.S. Army photos by Pfc. Ma, Jae-sang
  • Moving Expenses: A service member on active duty who moves because of a permanent change of station (PCS) may be able to deduct unreimbursed moving expenses.
  • Combat Pay: If a service member serves in a combat zone as an enlisted person or warrant officer for any part of a month, all military pay received for service during that month is not taxable. For officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received. Service members can also elect to include nontaxable combat pay in their “earned income” for purposes of claiming the Earned Income Tax Credit.
  • Extension of Deadlines: The deadline for filing tax returns, paying taxes, filing claims for a refund, and taking other actions with the Internal Revenue Service is automatically extended for qualifying members of the military.
  • Joint Returns: Generally, joint income tax returns must be signed by both spouses. However, when one spouse is unavailable due to military duty, a power of attorney may be used to file a joint return.
  • Travel to Reserve Duty: Members of the U.S. Armed Forces Reserves can deduct unreimbursed travel expenses for traveling more than 100 miles away from home to perform Reserves duties.
  • ROTC Students: Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay—such as pay received during summer advanced camp—is taxable.
  • Transitioning Back to Civilian Life: Service members may be able to deduct some costs incurred while looking for a new job. Expenses may include travel, resume preparation, and agency fees. Moving expenses may be deductible if closely related to the start of work at a new job location and certain tests are met.
  • Tax Assistance: Most military installations offer free income tax filing and preparation assistance during and/or after the tax filing season.

IRS Publication 3: The Armed Forces’ Tax Guide is an excellent resource because it summarizes many important military-related tax topics. Publication 3 can be downloaded from irs.gov or may be ordered by calling 1-800-TAX-FORM (800-829-3676). Another helpful resource is this list of federal income tax brackets. When someone knows their tax bracket, they can calculate the benefit of taking actions such as making charitable gifts and saving for retirement. For example, a $4,000 Thrift Savings Plan (TSP) contribution will save $1,000 in taxes for someone in the 25% tax bracket ($4,000 x .25).

This post was published on the Military Families Learning Network blog on March 2, 2015.

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