What Are Your Tax Benefits As A Servicemember?
by John Cooney on Aug 26, 2021
Do you know the tax benefits available to you as a servicemember? In this month’s article we will talk about what those benefits are and who they apply to.
Combat Zone Tax Exclusion
The most well-known benefit is the combat zone tax exclusion. This benefit provides servicemembers who are serving in a combat zone with tax-free income. This includes not only your base pay, but also Imminent Danger/Hostile Fire Pay, Bonuses, pay for accrued leave, and student loan repayments. For enlisted soldiers and Warrant Officers, your entire pay will be tax-exempt. For Officers, income over the amount of base pay of the highest ranking enlisted service member is still included in your taxable income. In 2020, that amount was $9,334.
There is nothing special you need to do to claim this benefit, it is handled through your local pay office. Typically, taxes are taken out when you are paid and then added back in in a mid-month transaction. You want to make sure this happens by looking at your LES. You will also check your W2 when issued to make sure the income from the months you were in a combat zone is not reflected in your gross income. What you can do though, is take advantage of the planning opportunities a tax-free income provides. These advantages include making Roth conversions and Roth contributions.
More Time to File Taxes
Speaking of deployments, if you deployed to a combat zone, or deployed outside of the United States on a contingency operation, then you also qualify for an extension of time to file your tax return. The deadline extends for 180 days from the last day you served in the combat zone, have qualifying service outside the combat zone, or the last day served in the contingency operation. If you are hospitalized during service in a combat zone or contingency operation, you will also qualify for the extension and in this case the 180 days will start from the last day you are in the hospital. The additional time is automatic, but I recommend you let the IRS know you are in a combat zone. You can do that by sending an email to email@example.com. When you send the email, let them know your name, stateside address, date of birth, and date you entered the combat zone. Do not provide or send them any documents that contain your social security number.
Free Filing Resources
If you feel comfortable filing your taxes on your own, Military OneSource provides you with a free filing option via their MilTax Software program. The MilTax software is a military-focused self-guided program to help you file your return…and it is free for all service members.
While the Tax Cuts and Jobs Act eliminated many of the miscellaneous deductions, including unreimbursed moving expenses, military members performing a PCS are still able to claim this deduction. Not only can you deduct unreimbursed expenses related to the PCS move, but what DoD does reimburse you for, gets excluded from your taxable income.
Reserve Travel Expenses
Another tax benefit related to your military service applies to members of the Reserves or National Guard. If you travel over 100 miles for your Reserve Duty, you are able to deduct your travel related expenses that are not reimbursed. For a more detailed description of this benefit and how to best track your expenses, check out this blog I wrote on the topic here!
Whether it is taking advantage of the planning opportunities that tax-free income provides or not having to pay to file a simple return, make sure you are taking advantage of the tax benefits that your military service provides. Knowing what these benefits are is an important first step, but to take full advantage requires you to be pro-active and diligent in tracking your expenses and ensuring you get the credit you earned. Remember, tax returns are not an event, they are a process! The more planning you do throughout the year, the less surprises you will find come April.