Special Tax Rules for Military Personnel
November 9, 2012 : Teresa L. Clark - Corporate Communications
On Veterans Day, all who fought for America are honored with local and national celebrations. As a supporter of military personnel and their families, we have nearly 100 H&R Block offices on military bases around the world and offices on more than 50 military bases across the U.S. And, every tax season, we’re proud to have prepared thousands of all active, reserve and retired service members’ tax returns.
If you’ve served our country, it’s important to understand the different types of pay you receive, eligibility for certain tax breaks, and your filing rules and deadlines.
Your types of pay are taxed differently
Combat pay is not taxed, but you can elect to have that money included as earned income to qualify for the Earned Income Tax Credit. Additionally, combat pay is included in the calculation of the refundable Additional Child Tax Credit for a potentially larger tax refund when the Child Tax Credit cannot be claimed in full.
Excludable income includes military allowances for living expenses, family allowances, death benefits and moving expenses. This income is not included in gross income when calculating taxes, which means less income is taxed.
You may be eligible for tax breaks for everyday expenses and relocations
There are no specific tax credits or deductions available only to military taxpayers. However, these are some tax breaks you may be eligible to claim:
- Earned Income Tax Credit rules allow military taxpayers to include nontaxable combat income for purposes of calculating the amount of the credit they are entitled
- The cost and upkeep of military uniforms may be qualified itemized tax deductions if those uniforms can’t be worn when off duty
- Military reservists and members of the National Guard can deduct unreimbursed travel expenses if they travel more than 100 miles away from home to report for reserve duties.
- Military personnel who move due to a permanent change of duty may be eligible to deduct unreimbursed expenses necessary for the relocation of their household. (Taxpayers don’t have to itemize their deductions to take this tax break.)
- When the next move is back to civilian life, the job search expenses incurred may be tax deductible as itemized deductions, if the positions being sought are similar to the work done in the military (e.g., military police and firefighters)
- The portion of these expenses (e.g., résumé development, professional placement services and unreimbursed mileage) when combined with other miscellaneous itemized deductions that exceeds 2 percent of adjusted gross income is tax-deductible
Your filing rules vary based on time in combat zones
Unless on a tour of duty outside the U.S. or Puerto Rico, or serving in a combat zone, you must submit your tax returns by the April deadline unless you apply for a six-month extension. However, an extension to file is not an extension to pay. To avoid late fees and interest, you must estimate your taxes owed and submit payment with the extension.
If you’re on a tour of duty outside the U.S. or Puerto Rico, you have an automatic two-month extension to file your returns. If you need more time, you can file the extension form for an additional four months.
When serving in a combat zone, exceptions are made to when tax returns are due. The extension to file tax returns and even pay taxes due is 180 days after the later of these dates:
- The last day served in the combat zone or the last day the area was designated as a combat zone
- The last day of any continuous qualified hospitalization for an injury from service in a combat zone.
For example, for soldiers whose duty in a combat zone ends Dec. 31, 2014, their 2015 tax return is due July 1, 2015.
Military personnel are required to sign their own tax forms or power of attorney may be granted to allow someone else to sign and file the return. When serving in a combat zone, you may have your spouse sign the return without securing power of attorney. A spouse also may sign for a solider unable to sign for medical reasons. In these instances, include a statement explaining why the soldier did not sign the return.
Because of the particularly complex nature of their taxes, service members are at particular risk for losing out on opportunities to claim all the tax breaks they are entitled. The advice of a tax professional can help you avoid negative financial consequences.
Editor’s Note: This post was updated on August 4, 2016.
[Image: Serf’s UP! via Flickr]