[Veterans Day Exclusive]: Military Tax Benefits
At Veteran’s Day we pay tribute to our U.S. armed forces – both active service members and veterans. But some people may not know that there are a number of military tax benefits available to military members, veterans, and their families. Read on to learn more…
Active Duty Military Tax Benefits
Armed forces members do not have to pay tax on some types of income. In addition, certain tax benefits could lower tax liability or make it easier to file taxes. Here are the details:
1. The Combat Pay Exclusion:
If a member of the Armed Forces serves in a combat zone, part or all of their combat pay is tax-free.
2. Tax Deadline Extension:
Military members serving in a combat zone may be able to postpone filing federal income taxes until 180 days after their last day of service. Members who serve outside the U.S. and Puerto Rico (but not in a combat zone) may also qualify for tax extensions.
3. Joint Return Signature:
While not a tax credit or deduction, different rules apply to military members and their families for signing their joint tax return. Normally, both spouses need to sign the return. If the military spouse is in active duty serving overseas, the non-military spouse can be granted power of attorney to sign on behalf of the deployed spouse.
4. Unreimbursed Military Moving and Travel Expenses:
The Tax Cuts and Jobs Act suspended the tax break for moving expenses starting in 2018 for most taxpayers. But this change doesn’t apply to active-duty military members who have a permanent change in duty station made because of orders to relocate.
Military reservists may also be able to deduct unreimbursed travel expenses on their federal tax return. In order to do so, the servicemember must travel more than 100 miles away from home in connection with the performance of services.
5. ROTC Allowances:
Students enrolled in an ROTC program do not pay tax on advanced training including educational and subsistence allowances. Please note, active duty ROTC pay is taxable.
6. More Tax Benefits: The Earned Income Tax Credit
Military members who get nontaxable combat pay may choose to include it in their income to qualify for the Earned Income Tax Credit (EITC) or a higher credit. The EITC is a refundable credit that lower’s the service member’s tax bill or increases his or her refund.
7. State Taxes
Active due service members who relocated to a new state may have to pay tax only to their home state. Non-military spouses who relocate to be with the servicemember may also be able to pay tax only to their home state.
Veteran Tax Benefits
8. Disability Severance Payments to Veterans:
Veterans discharged from military service because of a medical disability could get a one-time lump sum severance payment. If this is the case, the severance payment isn’t taxable and the veteran can file a claim for credit or refund using Form 1040X for the tax year in which the disability severance payment was received and included on the veteran’s tax return.
9. The Combat-Injured Veterans Tax Fairness Act:
This Act gives certain veterans who received disability severance payments after January 17, 1991, additional time to file claims for credit or refund to recover tax overpayments attributable to their disability severance payments.
10. Veterans Property Tax Exemption:
State residency matters when it comes to taxes. States can differ when it comes to military retirement pay, tax breaks on property taxes, and more. For instance, in most U.S. states disabled veteran service members have property tax breaks available to them on the basis of having a service-connected disability. Here is more information state-by-state on the disabled veterans property tax exemption.
More Help With Military Tax Benefits
Disability pension and compensation, training allowances, uniform costs, housing grants, sale of residence exclusions, uniform and upkeep costs, sale of home exclusion, investments, and compensated work therapy programs are all factors to consider when filing your taxes as a service member or veteran. Each will impact your overall taxable income — and thus your tax bracket.
See the IRS’s Armed Forces Tax Guide (Pub. 3) for details on all tax matters. For hands-on tax guidance, find a tax advisor near you who can help guide you to obtain the tax credits and deductions you are rightfully entitled to.
In fact, at Block Advisors, military certified tax advisors have successfully completed the Block Advisors certification program focusing on the unique tax situations encountered by Military personnel and their families. These tax advisors have advanced training covering Military specific tax laws and the preparation of Military tax returns.