Updated for tax year 2024.
Members of the U.S. Armed Forces undoubtedly face a variety of unique financial challenges. From serving overseas for extended periods and traveling for training to moving frequently and incurring uniform maintenance costs, the list of financial hurdles is quite long.
Fortunately, the IRS has designed special military tax benefits for service members to help alleviate a few of the headaches that can arise from those challenges. Here’s a look at the most common ways being a serviceman or woman can affect your taxes and responsibilities to the IRS.
1. Not all income is taxable.
If you receive combat pay, do not include it as taxable income on your tax return. Likewise, you should not pay income tax on allowances received for living and family expenses, uniforms, death expenditures, moving and travel costs, group-term life insurance, and professional education.
However, you need to pay income tax on basic compensation, such as payment for training and active duty service, bonus and incentive money, and student loan repayment from specific programs.
2. Travel and lodging expenses are deductible.
If you travel more than 100 miles and stay overnight as a National Guard member or Armed Forces reservist, you can take a tax deduction even if you do not itemize your deductions.
The IRS allows you to deduct the amount you spend for work-related travel and lodging plus 50% of the cost of your meals. But be sure not to deduct more for food and lodging expenses than the federal per diem rate for lodging and meals allows. The rates vary by state.
3. Military uniform expenses can be deductible in some states.
Prior to the Tax Cuts and Jobs Act (TCJA) in 2018, the cost of any uniforms you purchased that were unsuitable to wear off duty could be deducted with your miscellaneous itemized deductions. Uniform cleaning and maintenance were also tax deductible.
Right now, this deduction is currently not allowed at the federal level. However, some states (like California) may still allow this deduction.
Even though the military pays for basic moving costs, it’s not unusual to incur a few moving expenses that aren’t covered. In that instance, you can deduct any non-reimbursed moving expenses on your tax return without meeting the distance or time requirements that are standard limitations for moving expense deductions.
Any extra moving expenses are deducted as adjustments to income. You don’t need to itemize to take advantage of this tax break.
5. You can keep your home residency state.
Changing state residencies if you move frequently can be a huge pain. Not only is it a hassle to file tax returns for multiple states, but you may pay more state tax in one state versus another.
Fortunately, if you move for military reasons, you can keep residency in your home state. This guideline applies to your spouse as well. If at any time you live in a state that collects income tax but holds state residency in a state that does not, generally, the new state can’t enforce the income tax.
Additionally, if income tax is withheld from your paycheck, you can file a nonresident return with that state to receive a refund.
6. More time to file your return is available.
Extra time to file your tax return may be allowed if you are stationed abroad or are in a combat zone during the tax filing season.
The IRS grants you even more time to file taxes if you serve in a combat zone. You have 180 days from either the date you return from the combat zone or from your last date of continuous hospitalization for injuries received while serving in a combat zone to file your return.
The 180 days are in addition to the number of days you had left to file when you entered the combat zone. During this extension, no interest or penalties are charged to you. If you need more time, you should file for an extension which gives you until Oct. 15 to submit your return. If Oct. 15 falls on a weekend or holiday, the due date will fall on the next business day instead.
Keep in mind that while extensions give you more time to file, any tax you owe must be paid by the regular due date of the return.
7. Some military members qualify for tax benefits in the event of death.
If the survivors of a service member who died during active duty receive a $100,000 death gratuity, that amount is tax-free.
In addition, if a service member dies while on duty in a combat zone or in support of a combat operation, the service member’s tax liabilities to the IRS are forgiven. This includes tax for the year of death and, potentially, any prior years.
The bottom line
Military service comes with unique financial challenges, but the IRS offers several tax benefits to help ease the burden. From combat pay exemptions to deductions for travel and moving expenses, there are various ways service members can reduce their taxable income. Plus, special provisions allow military personnel to maintain their home state residency, get more time to file, and even receive tax relief in the event of death. By understanding these benefits, military members and their families can better navigate their tax responsibilities and maximize the support available to them.
This article is for informational purposes only and not legal or financial advice.
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