Military Tax Services
Military service impacts many areas of your life, and your financial life is no exception. The IRS offers several provisions for those that serve in the US Armed Forces.
Tax Exclusion for Combat Service
If you’re active-duty military and serving in a combat zone, you’re entitled to military pay that is not taxable by the IRS. This combat exclusion also applies if you’re hospitalized due to wounds, disease, or injury that you’ve incurred in a designated combat zone. This exclusion covers your basic pay for each month that you’re in the combat zone, and re-enlistment or continuation bonuses if they occurred while you’re in a combat zone, any hostile fire pay or imminent danger pay, income that you received from selling leave benefits, awards or other financial incentives that you received during the time you’re in the combat zone.
To receive the exclusion from the IRS, there is no required action on your part. The military will automatically certify that you are entitled to the tax exclusion. Any partial month that you serve in a military combat zone counts as a full month.
There are limits to the combat service exclusion – commissioned offers are limited to the highest rate of enlisted pay plus imminent danger and hostile pay for each month in the combat zone.
Filing for Free as a Military Member
As a military member, there is a service through the Defense Department that provides free tax preparation. This service, called MilTax, takes into account your deployments and combat pay, and any military housing and multistate filings you may need.
Where You’re Stationed Vs. Where You Reside
In the military, you’re used to moving around. As a member of the armed forces, you’re assessed income tax on the state where you reside, not where you’re currently stationed. However, if you have a part-time job in the area where you’re stationed, you do need to pay tax on that income in the state where you’re living via a non-resident return. Your military status does not extend to your spouse or dependents, who are subject to residency requirements as regular citizens are.
Military Spouse Residency Relief Act
Since spouses and dependent children are treated like regular citizens when it comes to residency, there are several residency relief acts in place that may make it easier when filing taxes if you’re living in a state where you don’t typically reside due to the military. MilTax, or the state tax website, can provide guidance into specific programs where you live.
Deployed? Get An Extension
If you’re deployed, the IRS will grant you an extension to file your taxes.
First Time Homebuyer Credit
Military members are provided a special benefit as first-time homebuyers. For service members serving outside of the US, they have additional time to buy a residence and apply for the credit. The credit repayment requirement is also waived for members of the armed services in many cases.
IRA Contributions as a Military Member
As a military member, you have additional time to make IRA contributions if you are serving in a combat zone.
In some circumstances, the IRS may offer tax forgiveness if a military member dies under specific circumstances. A tax expert can help you through this process, and you’ll need to meet certain criteria and submit a claim for either a credit or refund.
Military Education Tax Breaks
There are several tax breaks you can take advantage of, from the American Opportunity Tax Credit to the Lifetime Learning Credit if you’re interested in furthering your education. Student loans can also be deducted from your taxes as can qualified education expenses.
Taxes can feel particularly complicated when you’re in the military. At Diversified Tax, we’re happy to help, and we can assist you by connecting you with a financial planner to help you plan for your future as well.