(BPT) – If you’re a member of the U.S. Armed Forces or the spouse of a military member, special tax considerations are given for a variety of circumstances, so it’s best to be aware of issues you may need to research — or consult a tax professional about. For federal tax purposes, the U.S. Armed Forces includes commissioned officers, warrant officers, and enlisted personnel in all regular and reserve units under the control of Secretaries of the Defense, Army, Navy, Air Force, and Homeland Security, including the Coast Guard and Space Force.
Here are five top issues military families should know about filing taxes.
1. Determining taxable income
Military personnel receive many different types of pay, some included in gross income, others excluded. Unless the pay is for service in a combat zone, the following are subject to tax and must be reported on your return:
- active duty pay
- special pay including aviation, diving, foreign duty, hardship duty, hostile fire or imminent danger, overseas extension, special duty assignment
- reserve training pay
- armed Services academy pay
- accrued leave or mustering-out payments
- lump-sum payments made upon separation or release
- student loan repayments
- incentive pay
Pay and allowances that may be excluded from your income include:
- pay for active service in a combat zone or qualified support area.
- living allowances such as Basic Allowance for Housing, Basic Allowance for Subsistence and Overseas Housing Allowance.
- disability and medical benefits.
- educational/legal assistance.
- family separation allowances.
- temporary lodging for certain orders.
- uniform allowances.
- moving allowances.
Some excluded income items may be used to calculate certain tax benefits on your return, but are still not subject to income tax. For example, combat pay is included in income to calculate the Child Tax Credit and Child and Dependent Care Credit.
2. Deducting moving expenses
If you move due to permanent change of station orders, you do not have to meet the usual time and distance tests to deduct moving expenses. Permanent change of station includes moving:
- from your home to your first post of active duty.
- from one permanent post of duty to another.
- from your last post of duty to your home or a nearer point in the U.S.
For questions about complicated situations, visit the U.S. Military website at MilitaryOneSource.mil/financial-legal/.
3. Understanding combat pay
If you’re serving in a combat zone, some of your pay may be excluded from your income. Examples of excludable income include active duty pay earned in a month you served in a combat zone and imminent danger/hostile fire pay. Members serving in a qualified support area have the same benefits as members serving in combat zones. See a complete listing of designated combat zones at IRS.gov/Newsroom/Combat-Zones.
You may choose to include combat pay in your earned income calculations when calculating certain tax credits, such as the Earned Income Tax Credit. Combat pay must be included when calculating the Child Tax Credit or the Child and Dependent Care Credit.
4. Death of a service member
Special tax provisions apply to military personnel who die serving in a combat zone: Income tax does not have to be paid for the tax year in which they died, nor for any earlier year ending on or after the first day the member served in the combat zone in active service.
The death gratuity is a one-time payment of $100,000 to the surviving family of a deceased military member. For the death of an Armed Forces member occurring within 120 days after retirement, survivors also receive $100,000. These payments are tax-exempt.
5. Filing extensions
Anyone can receive a six-month extension by filing Form 4868 by the due date. However, you can qualify for an automatic extension until June 15 without filing Form 4868 if you’re in the military on an assigned tour of duty outside the U.S. and Puerto Rico during a time that includes the due date. Attach a statement to your return showing you met the requirements for this extension. You can also request an additional four-month extension to October 15. Write “Taxpayer Abroad” across the top of Form 4868 and file it by June 15. These extensions are for filing only, not for paying any balance due.
“Taxes are complicated for military members,” said Mark Steber, senior vice president and chief tax information officer at Jackson Hewitt Tax Service. “To benefit from up-to-date information to get your taxes done right, it’s always best to consult a tax professional.”
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The law office of elder law attorney Scott C. Painter, P.C., is located in Wyomissing (outside of Reading, PA, in Berks County,) and offers trusted legal services in the areas of elder law, including nursing home planning, trust and estate services, and veterans benefits. Scott C. Painter is a Certified Elder Law Attorney (CELA®), and he is also a member of the National Association of Elder Law Attorneys (NAELA).
If you have an issue or question, we encourage you to call us. With legal matters, time is of the essence. Call us for a consultation at 610-378-5140. The $300 consultation fee is waived if Attorney Painter is retained to perform services.