Serving in the armed forces is a sacrifice for the person on duty and that person’s family. Thankfully, there are military family tax benefits that offer tax breaks for commissioned officers, warrant officers, and enlisted personnel in active and reserve duty. Qualifying branches of the military include those under the Secretaries of Defense, Army, Navy, Air Force, and Coast Guard. Military family tax benefits include:
Combat pay doesn’t count as taxable income, but it does count toward figuring if the individual or married person can claim the Earned Income Tax Credit (EITC). The EITC is for individuals, heads of households, or surviving spouses who earn less than $47,955. For married filing jointly, the amount is $53,505. Based on income and several other qualifiers, the tax credit is worth anywhere from $506 to $6,269 for 2016 taxes. Reenlistment bonuses, pay for accrued leave and student loan repayments also do not count as taxable income. If a member of the armed forces dies while on duty in support of combat, then all tax liability is forgiven for that year. If the tax was paid, then the surviving spouse receives a full refund. The $100,000 death benefit is also not taxable.
If a person was called into active duty after 9/11/2001 for more than 179 days, then he or she may qualify for penalty-free early withdrawals from IRA or 401(k) accounts. This is true for those who are serving in the military reserves.
- Moving expenses don’t have the same time and distance requirements as for the general population. Members of the armed forces on active duty who move because of a permanent change in station can deduct unreimbursed moving expenses.
- Unreimbursed travel expenses related to service for travel more than 100 miles away from home may be deducted as an adjustment to income rather than an itemized deduction.
Other military family tax benefits
- Those serving in combat zones have an automatic 180-day tax filing extension and time extension to make a qualified contribution to an IRA. The extension is for filing, paying tax, and claiming a refund, but not for Social Security and Medicare taxes.
- Money owed to the IRS before joining the military has an interest rate cap of 6%. This rate is for those whose military service affects the ability to repay the money owed and is in effect while the person serves in the military.
If you have questions about tax rules for military families, please talk with your Salmon Sims Thomas tax advisor.