How Being in the Military Affects Your Taxes
By joining the armed forces, you have shown your dedication to fighting for the benefit of this country. While it may be impossible to list all of the trials that you will face while enlisted, income tax is not one of them. As a member of the military, you are entitled to certain benefits when it comes to tax filing. You will be able to take advantage of the following benefits offered to members of the military.
Those serving in combat zones are given an extra period of time to file their tax returns. This is an automatic extension of 180 days. It can even extend the period of time that you have for making a qualified contribution to your IRA! Although this period applies to tax returns, filing refund claims, and paying most taxes, Medicare and Social Security taxes do not offer the same extension.
While there are typically penalties associated with withdrawing from a retirement plan like IRAs or 401(k)s, those serving in military reserves may be allowed withdrawals without punishment. This exemption is limited to those called to active duty after September 11, 2001, for more than 179 days. The withdrawal must also take place during your active duty.
Income and Combat Pay
Combat pay is not considered income for tax purposes, so you do not have to pay income tax. However, you can use your combat pay as part of your Earned Income Tax Credit. This is useful because your EITC will decrease the taxes that you owe and might get you a larger tax refund.
You will avoid reporting no income for your EITC if you include your combat pay, ensuring that you will qualify. However, you have to choose to either include all or none of your combat pay in this calculation. You are not allowed to only include part of your combat pay in the calculations.
Other items are available for exemption from income tax if you are in the military. Enlisted members, warrant officers, and commissioned warrant officers are allowed to exclude student loan repayments, reenlistment bonuses, and pay for accrued leave are all able to be excluded.
Members of the military are also allowed to deduct certain expenses from their taxes. If you are given a permanent change of station while on active duty, your moving expenses may be deductible. Likewise, members of the armed forces reserves can deduct travel expenses that have not been reimbursed if they travel more than 100 miles in connection with their service in the military.
When a member of the armed forces dies on active duty, their survivors are given a $100,000 gratuity from the US government. This money is not taxable. It can also be paid to survivors if the member of the armed forces in question died within 120 days of their retirement, and their death was related to their service.
Armed forces members will also be forgiven for any tax liability upon their death. If you are on duty in a combat zone (or as part of a combat operation), any tax liability that you have already paid the IRS will be refunded to your survivor.