Tax Tips for Members of The U.S. Armed Forces

As a current or former member of the U.S. armed forces (including members of the armed forces, reservists, and National Guard) there are a variety of unique income tax benefits that you should be aware of:

• Filing Returns and Paying Taxes:
  • The general rule is that taxpayers are required to file their income tax return for the previous tax year by April 15^th and to pay whatever federal income tax they owe by the due date of their return. For members of the U.S. armed forces who are in a combat zone or deployed outside of the Unites States away from their permanent duty station, there is an automatic extension of 180 days after the member leaves the combat zone or contingency operation for filing a federal income tax return and for paying any income taxes due on that return.
  • An extension of time to pay federal income taxes due is available to members of the U.S. armed forces, even if the member is not in a combat zone or contingency operation if the member is performing military service and the member notifies the IRS that their ability to pay the income tax due has been materially affected by their military services. This extension is for 180 days after the termination of the member’s military service or after the member’s release from military service.
• Income:
  • Gross Income:
    • Specifically for members of the U.S. armed forces, gross income includes, but is not limited to, active duty pay, training duty pay, special pay (ex. aviation duty), enlistment and re-enlistment bonuses, and value of personal use of a government provided vehicle. Uniform allowances, basic housing allowances, moving allowances, travel allowances, and combat pay for personnel serving in a designated combat zone are specifically excluded from gross income.
  • Special Considerations:
    • Death benefits to survivors are excluded from gross income for federal income tax purposes.
    • Several States provide bonuses to veterans for their service during a time of war or in a specified military operation when the member is honorably discharged from the armed forces. These payments are considered combat pay and are excluded from gross income.
    • Pensions, annuities or other allowances for injuries or sickness resulting from active service in the armed forces are excluded from gross income.
    • Distributions from a retirement account that are attributable to contributions made from combat pay are excluded from gross income.
• Tax Deductions:
  • Even though basic allowance for housing (BAH) payments are excluded from gross income, if members pay mortgage interest or real estate taxes from BAH funds and itemize deductions on their federal income tax return, they can deduct the interest and real estate taxes.
  • Travel related expenses (mileage, parking, tolls, transportation, lodging and meals) are deductible as employee business expenses for members of the armed forces reserves and National Guard who travel more than 100 miles to perform required services.
  • If the government does not provide moving services (or reimbursement of moving expenses), an active-duty member of the U.S. armed forces can deduct actual expenses incurred if the move is the result of an ordered permanent change of station.
• Real Estate:
  • The general rule on a gain from the sale of a primary residence is that if a taxpayer sells his or her primary residence and has lived in that residence for at least two of the last five years, that taxpayer can exclude from gross income up to $250,000 (up to $500,000 for couples) of the profits realized from the sale. If the taxpayer is a member of the U.S. armed forces and having lived in the house for two years, has to leave because of a permanent change to station that takes the member more than 50 miles from his or her house, the occupancy period to qualify for exclusion on all or a portion of the profit on the sale of the house is extended to at least two of the last fifteen years. The extension period is limited to not more than 10 years.
  • The Servicemembers Civil Relief Act (SCRA) provides that a mortgage held by a member of the U.S. armed forces on active duty cannot be foreclosed by a lender while the member is on active duty or within one year after the active duty ends unless foreclosure is ordered by a court or agreed to by the member.