Taxes are difficult enough for civilians. But if you're a member of the armed services or in a military household, the dreaded chore of filing income taxes can seem even more complicated.
First, you have to sort out whether what you earned over the past year is even taxable. Some military compensation is not. That's generally a good thing, but there are circumstances when having a greater share of taxable earnings can result in a bigger tax refund. If you moved during the past year, you might not be sure where to file or whether you can deduct things like movers and travel costs. And just what makes a uniform deductible, anyway?
Ideally, members of the United States military wouldn't have to pay taxes. But even heroes can't escape income taxes — although enlisted soldiers or warrant officers serving in certain combat zones do earn federal tax-free income. For the rest of our service members and their families, there are other ways to reduce what you pay and maximize your refund.
10: Where Do I File?
In determining where to file, it helps to know two terms: home of record (your permanent address) and state of legal residency (SLR), which is the state where your permanent address is located. If you lived at your home of record or in your SLR in the past year, the answer is easy: File as you typically would.
If you're on active duty and stationed in the United States, you should file federal tax returns according to where you're stationed, not your home of record.
If you're on active duty outside of the U.S., you're still considered to be living in the U.S. for tax purposes. Those stationed overseas who have an army post office (APO) or fleet post office (FPO) address should send federal returns to the following address:
Internal Revenue Service Center
Philadelphia, PA 19255-0215
State returns are slightly different. Generally, anyone on active duty should file state taxes in his or her SLR. But whether you also have to file state taxes in the state where you're stationed depends on the state. Each has different laws determining whether you have to file in your state of residence while you're serving in another part of the country or globe. To find more information on your state taxes, visit this list of state tax information.
Keep in mind that if you have any non-military income from a second job or freelance work, you'll have to pay taxes on that income in the state where it was earned. So even if you don't have to file taxes on your military income, you'll have nonresident taxes on nonmilitary income [source: Intuit].
If your permanent address changes, let the IRS know by mailing form 8822 to the service center for your last permanent address. That information is included on the form.
9: When Do I File?
The tax filing date for military personnel is generally the same as everyone else's. For 2014 taxes, for instance, you must file on or before April 15, 2015.
However, there's a special deadline for certain members of the military. If you're stationed outside the United States, you get an extension. In fact, you get two extra months to file without even asking. Military personnel living overseas have until June 15 to submit income tax returns.
Regardless of where you're stationed, anyone can get a bit more time to file. Simply ask for an extension using form 4868, which can be filed electronically or through snail mail. File for an extension on or before your initial tax deadline of April 15 or June 15, and you get an extra few months to get your paperwork together.
Keep in mind, however, that you must pay some or all of the taxes you owe by the initial deadline or at the time you file the extension. Payments can be made electronically, by mail or over the phone [source: IRS].
Military Tax Tips: What Affects Your Taxable Income?
8: Which Income Gets Taxed?
One of the greatest benefits available to members of the armed forces is the ability to exclude some of your income from being taxed. The trick is figuring out exactly what is included in gross income and what is not.
Anything earned during time served or hospitalization in combat zones outside the U.S. during the tax year is excluded from gross income. For officers, there is a limit above which income will be taxed. That limit includes the officer's highest enlisted pay plus pay for hostile fire or imminent danger [source: IRS].
Allowances or reimbursements from the U.S. government or foreign governments can also generally be excluded from taxable income. This includes basic allowance for housing (BAH), basic allowance for subsistence (BAS), overseas housing allowance (OHA) and any other housing or living costs that the government pays. Moving and storage cost allowances can also be excluded, in addition to any travel allowances or per diems, and even uniform allowances. Death allowances and survivor payments can be excluded too.
Included in gross income is basic pay for active duty, training duty, reserve training and drills. If you received a bonus for enlisting or re-enlisting, that gets taxed too — as does special pay, including career incentives, pay for hostile fire, diving duty and special assignments [source: Military.com].
7: What If I Moved?
How housing and moving costs are treated depends on whether you're on active duty.
If you've been assigned to a new station permanently, any money the military supplies for your move and basic allowance for home (BAH) is not included in your taxable income. And mortgage taxes and interest can be deducted from your personal income [source: IRS].
Members of the military who are wounded or ill, or surviving spouses of deceased military members, might be eligible to participate in the Homeowners Assistance Program (HAP). For those who do participate, any benefits received can generally be excluded from federal taxable income. States, however, may tax this money [source: Department of Defense].
Travel and moving allowances provided by the military are also excluded from income. You might even be able to deduct moving expenses that you paid out of pocket. If you're stationed permanently in a new place or on active duty, any expenses beyond those reimbursed by the military are eligible for a tax deduction. On the flipside, if the reimbursements or moving payment amount to more than what it cost you to move, you might owe taxes on that money [source: Military.com].
Generally, if you sell your home, you can avoid capital gains taxes on up to $500,000 in profits if you lived in it as a primary residence for at least two out of the past five years. Military members have a bit more leeway. If you're on extended duty more than 50 miles from home for longer than three months, you might be able to avoid taxes on the sale of your home if you lived in it for at least two of the past 10 years [source: Military.com].
6: Which Income Qualifies for the Earned Income Tax Credit?
Taxpayers who earn less than $14,590 as a single person with no children or less than $52,427 as a married couple filing jointly with three or more kids might qualify for something called the Earned Income Tax Credit (EITC) for the 2014 tax year [source: IRS].
Unlike tax deductions, which reduce your taxable income, a tax credit can reduce the amount you owe dollar for dollar. The EITC is a refundable credit, meaning if your credit exceeds the amount you owe, the balance is refunded to you.
It's important to be aware of the EITC because, as a military member, you sometimes have pay that is nontaxable (including combat pay, basic housing allowance and basic allowance for subsistence). You also have the option to report some or all of your nontaxable combat pay in earned income, and your spouse can do the same.
Why would you choose more taxable income? Because if you qualify for the EITC, it could mean a bigger refund. It depends on your status, the amount of income you claim and number of dependents.
The IRS provides a good example from tax year 2013 to show why this is worth considering. A married couple, George and Janice, file jointly and have one child. George made $10,000 in nontaxable combat pay and $5,000 in taxable income. Janice earned $2,000 for part-time work. It brings their taxable income to $7,000, for which they could earn a credit of more than $2,300. Not bad.
However, if they claim all of George's income and bring their earned income up to $22,000, the couple could qualify for a credit of more than $3,200 instead [source: IRS].
If you have earned taxable income aside from combat pay, carefully weigh the benefits of including combat pay with earned income. The benefits of including combat pay drop off if your other taxable income is greater than $6,350 for individuals or $13,400 for married parents with three or more children.
If it sounds too complicated, you can have the IRS figure it out for you. To do this, you have to include the letters "EIC" on line 64a on the full 1040 form, 38a on form 1040A, or line 8a on the 1040EZ form [source: IRS].
Military Tax Tips: Do Family and Retirement Affect Your Tax Bill?
5: What Are Some Helpful Tax Deductions or Credits?
In addition to mortgage interest and moving deductions, there are a few other potential deductions to keep in mind. While some are unique to the military, most are available to all taxpayers:
Travel – If you're a member of the National Guard or Reserves, you might be able to deduct a portion of unreimbursed travel expenses for regular reserve trips farther than 100 miles away [source: Military.com].
Uniforms – Most military uniforms are not tax-deductible, with the exception of dress uniforms or other types of uniforms that can't be worn off duty [source: Military.com].
Child Tax Credit – You could qualify for a credit of up to $1,000 for each child you support under age 17. This is for taxpayers who earn less than $75,000 and file as single or head of household, or up to $110,000 for those who are married and file jointly. Qualifying children must be U.S. citizens, nationals or resident aliens [source: Intuit].
Education – If you, a spouse or a dependent are pursuing a degree, or even if you're simply taking a course or two, there's a tax credit that could help pay for the tuition and fees [source: IRS].
State income taxes – If you paid income taxes to your state or local region in the past year, you should be able to deduct the expenses on your federal income tax return [source: IRS].
Donations to charity – If you itemize your taxes, goods donated to a nonprofit, church, veterans group or other qualified organization during the tax year might qualify for a deduction of anywhere from 20 percent to 50 percent of gross income [source: IRS]. Just remember to get a receipt.
4: How Should My Spouse File?
Spouses have a few things to consider when filing taxes. The first is where to file. The good news is that spouses can choose to file taxes in their state of residence, rather in the state where their significant other is stationed.
If your spouse is from a low- or no-income-tax state, having the option to file there can save both of you some money.
Filing status is another tough one if you're the spouse of a military member on active duty outside of the country. When filing jointly, both members of a married couple are expected to sign the return. But for cases in which one spouse is serving abroad, the other can get power of attorney to sign for both [source: Crooks].
And if you're legally married to a same-sex spouse in a state or country that recognizes gay marriage, the IRS wants you to report it by claiming "married filing jointly" or "married filing separately" status [source: IRS].
3: What About Retirement?
Depending on how much you contribute to your tax-deferred Thrift Savings Plan or other retirement plan through the armed forces, you might also be able to deduct the amount you contribute to an individual retirement account.
Individuals can contribute up to $5,500 to an IRA in 2014. Those who are 50 or older can add an extra $1,000 in catch-up contributions. If you do not contribute to another account at work, you will qualify for a full deduction. If you do contribute to an employer-sponsored retirement plan, you can qualify for a deduction if you make $70,000 or less filing as single or head of household, or $116,000 if you're married and filing jointly [source: IRS].
The best part? Even if you did not contribute in 2014, you can still make an IRA contribution for that year if you do it by the tax deadline. That makes it an easy go-to choice when you need a last-minute deduction.
Or you can skip the deduction and opt for a Roth IRA, wherein contributions are made after-tax and earnings generally grow tax-free. If the money is withdrawn at retirement after age 59½, you'll never pay taxes on it again.
Military Tax Tips: Find More Help for Filing Your Taxes
2: What If I Am a Veteran?
If you're a veteran receiving disability benefits, you can exclude those earnings from your gross income. Disability benefits can include pension payments, dependent care and assistance, or grants to outfit your home or vehicle with special equipment that takes your disability into account [source: IRS].
Federal refunds are available to veterans whose disability amount has increased or who received special compensation for combat. This is a special circumstance, available only if the Department of Veterans Affairs has either granted or re-assessed your benefits. If that occurred in a previous year, you could file an amended tax return using form 1040X. Because of the complexity involved, it makes sense to seek professional advice if you think you might be eligible for this type of refund [source: IRS].
Regardless of disability, many veterans are also eligible for other types of federal tax credits, including the Earned Income Tax Credit. If you decide to go back to school or get involved in job training after the military, education credits can help cover the costs. And business owners who hire veterans can qualify for a credit known as the Work Opportunity Credit.
1: How Can I Get Help?
Military personnel can get free tax help through a government program called the Volunteer Income Tax Assistance program (VITA). Services include tax counseling, preparation of tax returns and electronic filing. The volunteers are vetted by the IRS, and the program operates in public centers across the country.
These services are available to disabled and elderly Americans too. Many military installations have VITA volunteers on base. To find a center near you, visit the IRS website or call 800-906-9887.
If you prefer to do it yourself, the IRS publishes a handy Armed Forces Tax Guide, also known as Publication 3 [source: IRS]. The booklet, which can be found online or downloaded as a PDF, includes example calculations and exercises to help you troubleshoot your own taxes.
While you can trust publications found on the IRS.gov website, be wary of email correspondence that claims to come from the IRS. Even military email addresses ending in .mil could be suspicious. As recently as 2012, the IRS became aware of a phishing scam targeting taxpayers getting income from Veteran's Affairs. The taxpayers were asked to send personal documents that were then used to commit identity theft [source: IRS].
If you receive any type of email requesting personal information, verify the source before responding. Check with the IRS's list of suspicious emails to stay on the lookout for common scams.
Many Americans don't think about their tax bills until the new year. But there are things you need to do before Dec. 31 if you want to pay less later.
Author's Note: 10 Tips for Filing Military Taxes
The Department of Defense and IRS make attempts to flag military members serving in combat zones so they know not to come after them if a return is a few weeks late. Service members who are wary of bureaucracy or just want to provide a second line of defense can also remind the government of their special status by sending an email to firstname.lastname@example.org [source: IRS]. It could be a good idea to go a step further and include the words "Combat Zone" along with deployment dates on the top of the completed tax return [source: National Military Family Association].
While combat pay in certain areas is tax-exempt, service members should be aware that it will show up on your W-2. Instead of being listed in the wages, tips and compensation box, it will be in the Social Security wages and Medicare wages boxes [source: National Military Family Association]. Most taxpayers can ignore these boxes when filing returns.
- Crooks, Tara. "Tax Tips for Military Spouses." Military.com. (Nov. 14, 2014) http://www.military.com/money/personal-finance/taxes/tax-tips-for-military-spouses.html
- Department of Defense. "Homeowners Assistance Program." April 10, 2013. (Nov. 16, 2014) http://hap.usace.army.mil/home.html
- Internal Revenue Service. "2014 IRA Contribution and Deduction Limits – Effect of Modified AGI on Deductible Contributions If You Are Covered by a Retirement Plan at Work." Oct. 23, 2014. (Nov. 18, 2014) http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/2014-IRA-Contribution-and-Deduction-Limits-Effect-of-Modified-AGI-on-Deductible-Contributions-If-You-ARE-Covered-by-a-Retirement-Plan-at-Work
- Internal Revenue Service. "Information for Veterans with Disabilities." March 28, 2014. (Nov. 14, 2014) http://www.irs.gov/Individuals/Information-for-Veterans-with-Disabilities
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- Internal Revenue Service. "Preview of 2014 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates." Nov. 14, 2014. (Nov. 14, 2014) http://www.irs.gov/Individuals/Preview-of-2012-EITC-Income-Limits,-Maximum-Credit--Amounts-and-Tax-Law-Updates
- Internal Revenue Service. "Publication 3 (2013), Armed Forces' Tax Guide." 2013. (Nov. 13, 2014) http://www.irs.gov/publications/p3/index.html
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- Internal Revenue Service. "Special Tax Considerations for Veterans." Feb. 20, 2014. (Nov. 18, 2014) http://www.irs.gov/Individuals/Military/Special-Tax-Considerations-for-Veterans
- Internal Revenue Service. "Tax Information for Members of the U.S. Armed Forces." April 23, 2014. (Nov. 14, 2014) http://www.irs.gov/uac/Tax-Information-for-Members-of-the-U.S.-Armed-Forces
- Internal Revenue Service. "Worksheet A - 2013 EIC - Lines 64a and 64b." (Nov. 17, 2014) http://apps.irs.gov/app/vita/content/29/media/fred_eic_worksheet_1040_instructions.pdf
- Intuit TurboTax. "7 Requirements for the Child Tax Credit." 2014. (Nov. 14, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Family/7-Requirements-for-the-Child-Tax-Credit/INF15610.html
- Intuit TurboTax. "Civilian Pay Earned by Active Duty Military." Nov. 3, 2014. (Nov. 14, 2014) https://ttlc.intuit.com/questions/1899476-civilian-pay-earned-by-active-duty-military
- Military.com. "Military Taxes: Figuring Gross Income." (Nov. 15, 2014) http://www.military.com/money/personal-finance/taxes/military-taxes-figuring-gross-income.html
- Military.com. "Military Taxes: PCS Costs." (Nov. 14, 2014) http://www.military.com/money/personal-finance/taxes/military-taxes-permanent-change-of-station.html
- Miltary.com. "Special Tax Breaks for Military Members." (Nov. 14, 2014) http://www.military.com/money/personal-finance/taxes/special-tax-breaks-for-military-members.html
- National Military Family Association. "Get Info: Taxes." (Nov. 20, 2014) http://www.militaryfamily.org/get-info/money/taxes.html
- National Technical Information Service. "Chapter 4 – Figuring and Claiming the EIC." IRS Tax Map. 2013. (Nov. 17, 2014) http://taxmap.ntis.gov/taxmap/pubs/p596-003.htm