Being in the armed forces is a tough choice that requires a serious commitment. At times, It may be a difficult situation for not only the individual but also their family members. With about 1.4 million active-duty military personnel, 1.1 million National Guard and reserve personnel and 700,000 civilian personnel, the U.S. Department of Defense employs more people than any other organization in the world. To honor their services, the U.S. Internal Revenue Service (IRS) provides tax benefits to those in the U. S. Armed Forces.
The following is a brief overview of some of the tax benefits provided to taxpayers who are members of the armed forces.
U.S. Armed Forces Tax Benefits
Exclusion of Combat Pay from Taxes
If a person is serving in a combat zone, they may receive additional pay as combat pay. The amount received as ‘combat pay’ may be partially or fully tax-free. If the individual serves in support of a combat zone, they may also qualify for this exclusion.
Tax-free pay is not required to be reported on the annual income tax return Form 1040 as it not part of the normal wages.
Earned Income Tax Credit (EITC)
Like other qualifying taxpayers, individuals working in the armed forces may also qualify for the Earned Income Tax Credit (EITC). An individual receiving nontaxable ‘combat pay’ may choose to include their combat income as a part of the total income to arrive at the credit amount. Including it may increase the EITC, meaning you may owe less tax and could get a larger refund. For 2018, the maximum EITC amount is $6,444 The average amount of EITC claimed in 2016 was more than $2,400. You should figure your taxes both ways and choose the option that best benefits you.
Moving Expense Deduction
If an individual has moved due to a change in station posting, the qualifying expenses incurred in the move may be deducted as a tax deduction if the expense has not been reimbursed.
Uniform Expense Deduction
Expenses incurred on purchasing and upkeep of a uniform that you can’t wear off-duty may qualify as a tax deduction if you have not been reimbursed by the government.
Privilege to Sign Joint Returns
Both spouses normally must sign a joint income tax return, however, individuals may sign their joint income tax return on behalf of their spouse if the spouse is absent due to military duty or conditions. A power of attorney may be required.
Reservists’ Travel Deduction
Unreimbursed costs of travel incurred by U.S. Armed Forces Reserve members to perform reserve duties that are more than 100 miles away from their home qualify as tax deduction and therefore may be claimed on the annual income tax return. This deduction is allowed even if the individual does not claim itemized deductions.
ROTC Allowances
Some amounts paid to ROTC students for advanced training are not taxable. This applies to allowances for education and subsistence. However, do note that active duty ROTC pay is taxable, example: pay for summer advanced camp.
Civilian Life Expense Deduction
If the individual leaves the military and wishes to live a normal life, he/she may deduct the expenses, such as: cost of preparing the resume, travelling, placement agency fees, etc. incurred on looking for a work.
Deadline Extensions
Some members of the military who are serving in a combat zone can postpone some tax deadlines, and an automatic extension would apply to file the tax return and pay taxes.
Free Tax Consulting
Most military bases offer free tax preparation and filing assistance during the tax filing season. Some also offer free tax help after April 15. In addition, the IRS has issued Publication 3, Armed Forces’ Tax Guide to assist with special tax situations of active members of the U.S. Armed Forces.
That being said, other normal credits and deductions may be availed by taxpayers who are part of the military, if they qualify. It is highly recommended that taxpayers always consult a tax professional to assist them with planning their taxes to reduce the tax burden.
AG TAX LLP CAN HELP
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of US and Canadian tax laws as well as cross-border compliance.
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- US Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a tax consultation to discuss your queries, please contact us at:
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Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.
