Report for Duty, Report for Taxes

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Army, Navy, Marines, Air Force and National Guard – are you ready? Tax filing time is near! Uncle Sam is grateful for your service, so he has a few extra benefits for you on your taxes this year. Just read through our comprehensive guide and take well-deserved advantage of your armed forces position when it comes to taxes. Don’t worry; we know the military world is not perfect. We’ll let you know about any possible downsides of being a military taxpayer, as well.

We know military personnel likes things to be straight and to the point, so here you go. The first thing we’ll tell you about is what’s new this year when it comes to armed forces’ taxes.

What’s new, IRS, Sir?

Uncle Sam made few changes to military taxes this year. In the first place, keep in mind that tax filing deadline is April 15, 2022, instead of April 16th, because of Emancipation Day in the District of Columbia. A nice change for the 2019 tax year lies in the First-time Homebuyer Credit. The purchase date for homebuyers who entered a binding contract before May 1, 2019 was extended from July 1, 2019 to October 1, 2019. If, however, you or your spouse are on extended duty outside the U.S. for at least 90 days between 2008 and May 1, 2019 (other requirements may apply), you may be entitled to additional time.

There were some changes applied to the Earned Income Credit as well. The maximum amount of the credit was raised and ranges from $457 if you do not have any children, to $3,050 (if you have one child), $5,036 (two children) and $5,666 (three children or more).

The amount of income that is allowed in order to take this credit was also increased. You can claim the Earned Income Credit if you have three children or more and your income is less than $43,352 ($48,362 if married filing jointly), or if you have two children and earn up to $40,363 ($45,373 if married filing jointly), or if you have one child and your income is not higher than $35,535 ($40,545 if married filing jointly), or if you don’t have any children and earn less than $13,460 ($18,470 if married filing jointly).

The Perfect Push-Ups: Workout your Deductions

While basic pay and many forms of special pay (for example hardship duty pay, hostile fire pay, special duty assignment and incentive pay) for active or reserve forces are taxable, there are some types of military pay and benefits that the IRS labels as non-taxable.

Several types of living allowance are non-taxable (basic allowance for housing, moving allowance, travel allowance). Combat zone pay is also non-taxable – this is an exception to the general rule that basic pay is taxable. If you’re a commissioned officer, however, you may not be able to deduct all your combat zone pay.

What you spend for buying and maintaining uniforms (epaulets and accoutrements included) is generally not a deductible cost, however, if your station restricts you from wearing your uniform when you are off-duty you can deduct these costs if they are higher than your uniform allowance.

Medical expenses are normally paid by the military, but if you happen to spend your own money for treatment or travel for receiving medical care, you can deduct those expenses if you itemize them. The deduction applies for any expenses that go over 7.5% of your AGI (adjusted gross income).

If you’re an armed forces’ reservist and you travel more than 100 miles for a military reserves related service, you are allowed to deduct your unreimbursed travel expenses as an adjustment to income (see Line 24 on Form 1040). This deduction is limited to the amount of reimbursement that the government allows its employees for travel expenses.

Other types of reserve personnel related payments are tax-free. For example, benefits under a dependent-care assistance program, disability compensation, grants for homes designed for wheelchair living or cars designed for veterans who lost their sight or the use of their limbs.

Additionally, remember that reservists who were called to active duty after Sept. 11, 2001 and served at least 180 days since that date are allowed to withdraw funds from an IRA account (individual retirement account), 401(k) or other individual retirement plans without having to pay the 10% early withdrawal penalty. This amount will not be taxed if it’s repaid back into the retirement plan within a set time frame (currently within two years after ending duty).

Tax Credits for the Military

You are entitled to the Making Work Pay Credit if you earned income from work, including any non-taxable combat pay. Even though combat zone pay is non-taxable, for the purpose of this credit, it is considered earned income.

In order to qualify for this credit, your AGI (adjusted gross income) has to be lower than $95,000 ($190,000 if married filing jointly) and you must not be claimed as dependent on someone else’s tax return.

The credit amount is 6.2% of your earned income, but not higher than $400 ($800 if married filing jointly). The credit starts phasing out if your AGI is higher than $75,000 ($150,000 if married filing jointly).

To claim the Making Work Pay credit, file Schedule M (Form 1040 or 1040A). If you’re filing Form 1040EZ, you can claim the credit on Line 8 and do not have to file Schedule M.

The First-time Homebuyer Credit has some new benefits for the military personnel. If you’re serving outside the U.S., you have an extra year to purchase a principal home in the U.S. and qualify for this credit. In other words, an eligible member of the armed forces can buy or enter into a binding contract to buy a principal home on or before April 30, 2022. Then the taxpayer has until June 30, 2022 to close on that purchase.

In some cases, the credit repayment (recapture) requirement is waived for armed forces’ members. The relief applies if a residence is sold or is no longer a principal residence after Dec. 31, 2008, in connection with government orders received by the individual (or the individual’s spouse) for qualified official extended duty service.

Tax Forgiveness for Our Fallen Soldiers

Tax liability can be forgiven, or if already paid, refunded, if an armed forces’ member dies while being in active service in a combat zone, or from injury incurred in a terrorist or military action.

Tax for the year of death and also possibly for earlier years can be forgiven.

Moreover, any unpaid tax liability at the date of death may be forgiven.

Military Taxes Downsides

Not everything is perfect in the military and taxes are no exception. Don’t listen to your great-uncle John who is a WWII veteran; basic pay is taxable. It really is. There is, however, one exception: if you actively served in a tax-free combat zone (the least they could do right?)

We know, it isn’t particularly fair for armed forces members to have their basic pay taxed, but life is harsh and no one knows this reality better than military personnel. So you just have to accept that you’ll pay federal income tax, social security, medicare and state taxes on your basic pay. There are, however, some states which do not tax military pay, but you’ll have to check with your local authorities to determine if that applies to you.

What else might you not like about military taxes? Making mistakes is human, so you might occasionally find your taxes have been screwed up by your designated tax service center. If you feel something is wrong, best thing to do is NOT PAY until you receive sufficient notice from the tax center that the respective amount is correct. One other thing you can do is ask for expert advice from third party individuals or organizations (TurboTax online service, for example, offers some free services to the military personnel).

Where, When and How to File Your Taxes

If you’re working for the military, you have to send your federal return to the IRS Center responsible for the place where you currently live, even if your permanent home is some place else. If you are not in the U.S. and have an army post office (APO) or fleet post offices (FPO) address, you can send your tax return to the IRS Center in Austin, Texas.

The deadline for filing taxes is April 15, 2022 for most individuals. If however you are serving in a combat zone or outside the country, you may be eligible for an extension. For example, members serving outside of the United States -- including supporting operations in Libya and Japan -- will receive an automatic two-month tax filing extension this year, according to an official statement.

Keep in mind however that an extension of time to file does not mean you have an extension of time to pay any tax due (penalties and interest will apply for any owed payment that is not paid by the regular due date).

One other important thing is that any so-called “life changing events” have to be reported to the IRS. For military personnel, this includes major changes in income when called to active duty, deployed overseas, or in case of a significant promotion or new assignment. This information will help determine exactly what forms you have to file with the IRS this year.

It’s Our Turn to Help

It’s true, the tax season is stressful and confusing and the last thing you need when you already have the huge responsibility of protecting our country. You can easily surpass any stress and difficulty if you acquire all necessary forms and fill them properly early.

Are you stuck? Don’t worry, help is on the way. Most military centers offer free tax filing and preparation assistance during the filing season. IRS Publication 3, Armed Forces’ Tax Guide, summarizes many important military-related tax topics. Publication 3 can be downloaded from IRS.gov or may be ordered by calling 1-800-TAX-FORM (800-829-3676). If browsing through hundreds of pages is not your style, there are good alternatives for you as well. Online help, like TurboTax tax advice website, are at your service. Thanks for protecting our country and have a nice filing season!