Soldiers’ pay is subject to federal income tax just like civilians' pay. The amount withheld from each check or direct deposit is based on the same basic information: whether you’re married or single and how many dependents you claim. However, unlike civilians, some military pay is tax exempt.
Although soldiers are required to pay federal income tax on their salary, they also qualify for a number of valuable deductions based upon the specifics of their deployment that are unavailable to civilians.
Combat Zone Pay Exemption
Enlisted military members, warrant officers and commissioned warrant officers serving in combat zones may be entitled to a federal tax exemption. To qualify for this exemption, you have to be assigned to a combat zone that’s been approved by the IRS and you have to be receiving special pay “for duty subject to hostile fire or imminent danger.” If you meet these criteria, what you earn during that time will be exempt from federal income tax. This applies even if you served in a combat zone or other approved area for just part of the month.
The IRS publishes a current list of approved combat zones on their website. In addition to actual combat zones, it includes hostile areas, combat support areas and contingency operations areas.
The Military Spoke and Government Listened
Some military organizations were included in discussions about tax reforms going into effect for the 2018 tax year. As a result, military personnel kept many of the deductions they’ve historically been entitled to. For example, non-reimbursed expenses related to the cost and maintenance of uniforms that cannot be worn when off duty are still deductible. Beginning with the 2018 tax year, most of us can no longer deduct moving expenses but military members still can under most circumstances. Considering how frequently some military people have to move, this is good news.
On a larger scale, military members are eligible for a generous extension on the time limit for avoiding capital gains tax when they sell their home. All taxpayers can avoid paying capital gains tax on the sale of their home if it was their primary residence for at least two of the five years before they sold it. However, military service members can extend this for up to 10 years when they’ve been assigned to “qualified extended duty.” Qualified extended duty is an assignment for 90 days or more to a location that is at least 50 miles from home.
Tax Filing Extensions
The federal tax filing date is the same for military personnel as it is for everyone else: April 15. However, special filing extensions are available. If you’re stationed outside of the U.S. and Puerto Rico, you’re given an automatic two-month extension to June 15, though you still have to pay any taxes that you owe by April 15. If you need more than two months to get your tax filing documents together, you can file for the same six-month extension, to Oct. 15, that’s available to all U.S. citizens. Additional extensions are available. Check the IRS’s website to see if they apply to you.
Discharged, Now What?
After you’ve been discharged from the the military, federal tax deductions are available to help you ease back into civilian life. For example, some job hunting costs are deductible. These deductions can include the costs of traveling to job interviews, resume preparation and job agency fees. Moving expenses may also be deductible if you have to relocate for a new job.
Federal tax advantages for military members are numerous and varied. Be sure to check the IRS’s website and talk to a professional tax adviser who has experience working with military people to find out which benefits apply to you. The Volunteer Income Tax Assistance Program is another resource for military members. VITA is free and it’s available through most military installations.
- IRS.gov: Armed Forces' Tax Guide 2017
- IRS: Combat Zones Approved for Tax Benefits
- VeteranAid.org: What the 2018 Tax Reforms Mean for Military Members
- Military.com: Special Tax Breaks for Military Members
- Military Times: Military tax tips: Ways service members can save in 2018
- IRS.gov: Free Tax Return Preparation for Qualifying Taxpayers
- How Stuff Works: 10 Tips for Filing Military Taxes
LeDona Withaar has over 20 years’ experience as a securities industry professional and finance manager. She was an auditor for the National Association of Securities Dealers, a compliance manager for UNX, Inc. and a securities compliance specialist at Capital Group. She has an MBA from Simmons College in Boston, Massachusetts and a BA from Mills College in Oakland, California. She has done volunteer work in corporate development for nonprofit organizations such as the Boston Symphony Orchestra. She currently owns and operates her own small business in addition to writing for business and financial publications such as Budgeting the Nest, Zacks and PocketSense.