Special Tax Benefits for Armed Forces

Although there are military centers on the bases to help; there are others who can assist service members to get the best. For example, some of them might not realize that the Law HR 3149 expands the income tax subtraction for military pay; in other words, service members can receive a double tax benefit for: Tax-free housing allowances and deduction of mortgage interest and real estate taxes from income taxes.

TAX FREE HOUSING ALLOWANCES: Another benefit that service members can receive (that they might be aware of) is free government housing or tax-free housing allowances to assist them in obtaining private housing. There is also an increase in the income tax credit for service personnel in a combat zone and provides a new credit for past military service.

For military service members who have served at least 20 years will receive credit. Also, those who have service-connected disabilities rated as permanent or total will receive credits amounts to $750 and is phased out for individuals with adjusted gross income over $30,000 as reported on the Federal income tax return. Those with adjusted gross income (AGI) below $30,000 receive full credit. Those with adjusted gross income from $30,000 to $37,500 have the credit reduced by an amount equal to 10% of their income over $30,000 over $37,500 are not eligible for credit. It can be claimed annually; however, it can only be used to offset income tax liability. In 2006; the ex-President Bush solved the conflict in the tax code by allowing service members who serve in a combat zone to still contribute to their individual retirements accounts according to a Defense Department Official.

Service members who received tax exempt pay in combat areas were having problems: Taxable income was not high enough, so they were prevented from contributing to their retirement accounts or were facing tax penalties for doing so. This was referred to as the “Heroes Act,” which makes an exception for service members who are in combat zones.

All income earned in combat zones is exempt; however, for officers it is excluded up to a certain limit. Tax-exempt income has worked against some service members by exempting them from important credits. Two credits that military members often quality for are: earned income credit and the child tax credit which require earned income to be claimed. They can now include their combat zone income to qualify for these credits which will not be taxed, but allow them to receive credits they qualify for.

Most military bases have tax centers for service personnel, retirees, and family members to assist with any questions as well as to file their taxes electronically. IRS.gov also has a free filing service on its web site who provide free services to military members. When they are filed electronically, people receive refunds within seven to ten days. There are other sites, for example; Militaryonesource, that provides free tax assistance to military members.

Military members should have their W/2 Forms from the military as well as another jother jobs they have had in the past year. They should also make sure they have social security cards for themselves and their dependents.

FIRST TIME HOME BUYER CREDIT: Military service members who are replacing their principal residence will receive a credit up to $6,500, or $3,250 for someone married but living separately. In order to receive credit for the principal residence, it has to be closed on or before June 30, 2010, and claimed on the 2009 or 2010 return.

When filing taxes, civilian tax papers covered by the relief provisions should write the words: “Combat Zone,: and deployment date in red at the top of the tax returns. Members of military do not need to write “Combat Zone” because the U.S. Department of Defense informs the Internal Revenue Service about members in combat zones. 

TELEPHONE CALLS: Those originating in combat zones that were made by members of the United States Armed Forces serving were exempt from Federal excise tax on toll phone service provided a Provider-executed exemption was furnished to the telephone service Provider receiving payment for the call. If you do not have certification of exemption, you can request a refund on an amended Federal income tax return. There is a line for claiming telephone excise tax refund.

HURRICANES: There were also provisions for veterans who were victims of Hurricanes Katrina, Rita, and Wilma, who lost homes or property.

NOTE: Military pay for active service in combat zones that are excluded from gross income will not appear on Form W-2 in the box marked: “Wages, tips, and other compensation.” It is subject to wages and Medicare wages and tips. If you believe you are entitled to military pay exclusion, but this is not on your W-2, ask the service branch to issue a corrected W-2.

Some military members might not be aware that when in combat zone; they receive an automatic six-month extension in which to file taxes from the time they leave the combat zone to filing date. Other service members have a two-month extension to file.


U.S.militaryabout.com/od/taxes/military_income_taxes.htm (“Military Income Taxes by Sgt. Sara Wood)