Military Tax Benefits
Here at PRIME Corporate Services, we’re eternally grateful for the bravery and dedication shown by the members of our nation’s military. That’s why we’re thrilled to share some tax benefits that are only available to those who serve in the Armed Forces. Check out these tips—and let us know if we can help you keep your financial house in order while you’re serving our country.
Special Tax Benefits for Military Members
The IRS offers several benefits for those who serve, including:
- Combat pay exclusion: If you serve in a combat zone, part or all of your pay is tax-free. According to the IRS, this also applies to “people working in an area outside a combat zone when the Department of Defense certifies that area is in direct support of military operations in a combat zone.” While this benefit is broadly applicable to people serving in the most dangerous areas of combat, it’s important to note that there are limits to this exclusion for commissioned officers.
- Other nontaxable benefits: If you receive a base allowance for housing, a base allowance for subsistence and/or a uniform allowance, you do not have to include those allowances in your gross income calculations. This means that this form of compensation is not taxed for military members.
- Moving expenses: If you have non-reimbursable moving expenses as a military member, some of those expenses may be tax deductible. To qualify as a deductible expense, the move must be due to a military order or the result of a permanent change of station, and you must be a member of the Armed Forces on active duty.
- Deadline extensions: Serving overseas may allow you to postpone most tax deadlines. If you qualify, you can get automatic extensions of time to file and pay your taxes.
- Earned income tax credit: Although we normally counsel our clients to reduct their taxable income using deductions and other strategies, there are instances where a taxpayer might want to increase the amount of their taxable income in order to increase their earned income tax credit. Special rules allow military members to elect to include nontaxable combat pay in their taxable income. One reason they might do this is to increase the amount of their earned income tax credit. Ironically, this strategy can help certain members of the Armed Forces owe less taxes or get a larger refund.
- Joint return signatures: Under normal circumstances, the IRS requires both spouses to sign a joint income tax return. If military service prevents that from happening, however, one spouse may be able to sign for the other or get a power of attorney. You can consult with your installation’s legal office to see if a power of attorney is right for you and your family.
- Reserve and National Guard travel: If you serve as a member of a reserve component of the Armed Forces, you may be able to deduct your unreimbursed travel expenses when you return. To take advantage of this benefit, you must travel 100+ miles from home in connection with your work as a member of the reserves.
- ROTC allowances: The IRS does allow for some payments made to ROTC students—especially those for advanced training—to remain non taxable. Most active-duty ROTC pay, however, is taxable income.
- MilTax military tax filing software: Members of the military community can use MilTax—a free tax resource offered through the Department of Defense. MilTax offers tax preparation and electronic filing software, support from tax consultants, and updated information about filing your taxes. Unlike the tax prep software available to civilians, MilTax addresses important aspects of military life, including combat and training pay, deployments, housing rentals, and multi-state filings. There are no income limits with MilTax, and if you are eligible, the program allows you to electronically file one federal tax return and up to three state returns for free. It’s designed to address the realities of military life – including deployments, combat and training pay, housing and rentals and multi-state filings.
Tax Help for Military Members
Whether you’re serving in the Armed Forces full time, or serving as part of a Reserve unit, we know that you and/or your spouse may be working hard to supplement your income with side hustles and entrepreneurial endeavors. If you’ve got questions about how to handle your finances and minimize your tax liability, we’d be honored to help. You can set up a free consultation any time and talk with a PRIME expert about how you can keep more of your hard earned money. Reach out today if we can help, and from all of us here at PRIME—thank you for your service!