Military members are given special tax breaks to ease their tax burdens. If you are in the U.S. Armed Forces make sure you don’t miss the opportunity to take advantage of these benefits.
CNN Money reported on the top eight biggest tax breaks available to military members.
Almost everyone in the military is reassigned to a new base at one point in their career, and for most it happens several times while with the Armed Forces. When you do have to move, you are eligible for the moving expenses deduction. Unlike civilians, you can take the deduction no matter how near or far your new duty station is from your previous one. You can deduct any moving-related expenses the military doesn’t reimburse you.
If you are reservist called up for active duty for over 179 days, you may end up taking a pay cut from your regular job. If you need help making ends meet, you can take a penalty-free 401(k) withdrawal without having to pay a 10% early-withdrawal penalty. However, you will still owe income taxes on the money withdrawn.
Everyone who gets a paycheck is subject to income tax. However, if you are an enlisted military member in a designated combat zone, your pay during the assignment is exempt from federal income taxes through the tax-free combat pay policy. This applies even if you are not physically in the combat zone, but are assigned to a unit that directly supports it.
Officers also qualify for this benefit, but only to the amount that the highest-paid enlisted soldier makes. Also, the combat pay is free of state taxes everywhere except New Jersey.
Active duty personnel should check the states where they lived when they enlisted to see if they provide any income tax breaks on military income. While active military members are expected to file in their home states, reservists file in the state where they lived when called up for duty. State breaks on military pay do not apply in the nine states that do not impose income tax as members from these areas do not have to file a state return.
Even though their combat pay remains tax-free, military members have the flexibility to choose to count their nontaxable income if it qualifies them for a larger Earned Income Tax Credit. Normally, you can only count earned taxable income. This measure is especially helpful to military families in which one works in a combat zone and the other must stay home to take care of their children.
Federal tax debt forgiveness may be given to military members who die while on active duty in a combat zone or from a terrorist or military action. While this is not a benefit anyone wants to receive, it can be helpful to a military family during their time of need as it forgives tax debt in the year of death as well as any prior taxes owed dating back to the first day of combat service.
Reservists have the option to deduct any unreimbursed travel expenses when responding to duty more than 100 miles from home. The reservists’ travel deduction is much more permissive than for that of a civilian. Even if they don’t itemize their deductions, they can take the travel deduction.
A handy tax benefit available to military members based outside the U.S. or Puerto Rico is the ability to file taxes later. If you are one of these members, you are granted an automatic two-month extension without even applying for it. But you still have to pay what you owe by April 15. However, if you are serving in a combat zone, you do not have to file your federal return or pay any tax due until 180 days after your last day served in the zone or your last day of hospitalization if you received any injury while there.
Of course, as with anyone seeking tax advice, it is advisable for military members to meet with a tax professional if there are any questions regarding tax benefits and breaks geared specifically towards members of the Armed Forces.