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Tax Deductions For The Military Armed Forces

Tax Deductions For The Military Armed Forces

Military members enjoy many tax benefits, including one-time tax deductions, combat pay exclusions, and extended time limits. Read on to find information on various military-specific tax matters.


Tax incentives and deductions for military personnel

If you are in the military, you may be qualified for special tax exemptions. For instance, some types of payments are not taxable (for example, the ROTC). Several non-taxable expenses should not be reported on your return. As a military member, there are certain rules you can apply to tax deductions or credits that can reduce your tax debt. You may also have added time to pay income taxes or file your taxes. Here are some major tax cuts you can take advantage of:

  • Capped Interest Rate: As a part of the United States Military, your interest rate cannot exceed 6% during a year in which you owe taxes to the IRS before entering service. The limit applies when your service affects your ability to pay taxes owed and will remain as long as you are an active military member.

  • Deadline Extensions: If you have served in a combat zone or currently serve in one, you can postpone some tax conditions. If you are qualified, you can get an automatic extension of the deadline for submitting your tax return and paying any taxes owed. Some battle payments are not taxable when served in a battle zone, will not be included in the tax return, and are not considered taxable income.

  • Differential salary: if you work for a separate job but temporarily leave your job for active duty, your employer may choose to pay a differential salary. These payments are made while on duty for more than 30 days and maybe in whole or in part from normal wages. These payments are taxable income but are also excluded from Social Security and Medicare or FICA taxes.

  • EITC: Your non-taxable battle payment will be used to calculate your earned income tax credit, which may lead to a higher EITC. Again, combat pay is always tax-free.

  • Education costs: work-related educational training can be deducted if your employer requests it and maintains or improves the job's skills. Tuition assistance for military education can also pay up to 100% of tuition fees.

  • Housing allowance: The basic housing allowance or BAH is excluded from taxable income. However, you can deduct various expenses paid with your BAH, such as mortgage interest or property taxes.

  • Moving Expense Deduction: If, as an active member, you move or relocate due to a military order, you can still deduct moving expenses from your federal income tax return. The relocation expense deduction has been eliminated for all other taxpayers due to the Tax Reform Act of 2018. Some states, like Massachusetts, still allow relocation expenses.

  • Signing and Filing Joint Returns: If you are filing a married jointly return, both spouses must sign it. If your spouse is not available to sign the return due to an absence due to military service, you may be able to sign the return for your spouse. 

  • Uniform deduction: you can deduct the cost of purchasing and maintaining uniforms. These uniforms should be the ones you cannot wear if you are duty-free. If you receive an allowance for your uniform, the deduction must be reduced by the allowance amount.

  • Uniformed Services Traditional Thrift Savings Plan (also called TSP): As a type of pension plan, the thrift savings plan allows distributions to be included as taxable income unless a non-taxable combat payment has been made to the plan. 

  • Withdrawal from a pension plan: When you retire early from a pension plan, you may receive penalties. However, if you are on duty, you can make an early withdrawal from a 401(k) or IRA without penalty. You will normally be eligible if you receive qualified reservists' distribution after September 11, 2001, if you have been called upon active duty for at least 180 days, and made the distribution while on active duty.


IRA, retirement plans

Different types of savings plans have various benefits for the military. This includes the Traditional IRA, Roth IRA, Simplified Employee IRA (SEP), or a SIMPLE plan or employee incentive IRA.

As a member of the military, you will be considered covered by a pension plan maintained by your current employer if you made contributions during the year. You can see the information about your pension plan on the W-2 form you receive from your employer.

You can reimburse or contribute amounts equal to the distributions from qualified reservists you have received. As a soldier, you have two years to make these reimbursements. This refund is not deductible and will not affect the IRA deduction.


Moving Allowance and Reservists Travel Deduction 

If you are traveling as a member of the U.S. Armed Forces Reserve, you can usually deduct the cost of your travel expenses. This includes unreimbursed travel expenses when carrying out reserve activities more than 100 miles from home. The amount of expenses that you can deduct as a gross income adjustment is limited to the normal federal daily rate for accommodation, meals, extras, and the standard mileage rate (for car expenses), in addition to parking and ferry fees and taxes.

If you move overseas, the same deductible applies. The deduction of the costs of moving personal effects from storage and/or storing the items in a unit, so long as the new location is the job location.


Who can deduct travel and relocation expenses?

To pass as a member of a reserve component of the United States Armed Forces, you must be a member of the Army, Naval, Air Force, the Army National Guard of the United States, Coast Guard Reserve, the Air National Guard of the United States, the Reserve Corps of the Public Health Service, or the Marine Corps. If in the course of your duties as a Reservist, you must travel more than 100 miles from your home, you must indicate this on your 2020 income tax return.

Travel expenses not exceeding 100 miles from home cannot be deducted as an adjustment to gross income. In this instance, you must complete Form 2106 and deduct the expenses as an itemized deduction in Schedule A.

If you are permanently transferred to a new station as an active member, you can deduct the relocation costs or receive a refund. It covers relocation costs, such as mileage and accommodation. If you receive a refund, do not enter this income as taxable income on your return. If you are not refunded, the amount will be in the form of a deduction, which will be reported on your return after the year in which the change occurred.

If you are in Reserve Officer Training Corps (ROTC) training and receive a room and boarding scholarship, these amounts are not considered taxable. Not to be confused with the ROTC payment on active duty, which is considered taxable income.


Non-taxable expenses for members of the armed forces

Here are some examples of tax-free expenses:

  • Annual return ticket for dependent students

  • Basic housing assistance

  • Basic living allowance

  • Combat zone pay 

  • Defense counseling 

  • Disability payments

  • Family separation allowance

  • Group term insurance premiums

  • Medical and dental care

  • Moving expenses

  • Payments for the financial assistance program

  • ROTC contributions: unpaid.

  • Survivor protection plan premiums 

  • Temporary accommodation

  • Travel expenses on leave between consecutive periods of service abroad

  • Uniform subsidies

These types of payments are tax-exempt and do not constitute tax deductions or exemptions. They are not taxable; these are excluded from your gross income but may need to be declared on return.


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