CARL WATTS & ASSOCIATES

August 26, 2013

www.carlwatts.com
office@carlwatts.com
Washington DC
 tel/fax 202 350-9002
TOP

There are just under one million and a half active personnel and another 850,0000 reserve personnel in the US Armed Forces right now, out of which an impressive number are present in 150 countries around the globe to proudly represent one of the largest military force in the world.

For federal tax purposes, the U.S. Armed Forces include officers and enlisted personnel in all regular and reserve units controlled by the Secretaries of Defense, the Army, Navy and Air Force. The Coast Guard is also included, but not the U.S. Merchant Marine or the American Red Cross. However, these and other support personnel may qualify for certain tax deadline extensions because of their service in a combat zone.

There are numerous IRS provisions designed for the military, including special tax benefits for members serving in an area designated or treated as a combat zone, as well as military pensions or veterans' benefits. We will present here the most important tax provisions for this special category of taxpayers.

When it comes to income, members of the Armed Forces receive many different types of pay and allowances. Some are included in gross income while others are excluded from gross income.

Items excluded from gross income usually refer to living allowances, moving allowances, travel allowances, combat zone pay, and death allowances. Excluded items are not subject to tax, but may have to be shown in your tax return. Here are some of the items that may be excluded from gross income:

  • Combat zone pay. Generally, military enlistees up to warrant officers (including commissioned warrant officers) can exclude all their military pay received for military service in a combat zone from their gross income. For commissioned officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received.


  • Living allowances, which include BAH (Basic Allowance for Housing) and BAS (Basic Allowance for Subsistence).

  • Family allowances: emergencies, separation, certain educational expenses for dependents, etc.


  • Moving allowances, such as: dislocation, move-in housing, moving household and personal items, temporary lodging expenses, etc.


  • Travel allowances include: annual round trip for dependent students, leave between consecutive oversees tours, transportation for personnel or dependents during ship overhaul or inactivation, etc.


  • Death allowances: burial services, death gratuity payments to eligible survivors, travel of dependents to burial site.


  • In-kind military benefits: dependent care assistance program, legal assistance, medical/dental care, etc.

  • Other pay, such as defense counseling, disability payments, group-term life insurance, professional education, uniform allowances, survivor and retirement protection plan premiums, etc.

Generally, military personnel can deduct some portion of the contributions made to a traditional individual retirement account (IRA) for the year. However, if covered by an employer-maintained plan at any time during the year then not all of these deductions may be eligible. According to the IRS, Armed Forces members (including reservists on active duty for more than 90 days during the year) are considered covered by an employer-maintained retirement plan.

Military personnel qualify for additional time to make contributions to an IRA. It is also important to note that even though combat pay is nontaxable, it must be calculated as part of the limits on IRA contributions and deductions of IRA contributions.




The US Armed Forces
and The IRS
Troubles viewing this message? View in browser online here
Military personnel may not have to pay tax on all or part of the gain from the sale of their main home (usually, the one you live in most of the time, either a house, cooperative apartment, condominium, mobile home, or houseboat.)

Tax credits such as earned income credit, child tax credit, and certain education credits are available also with the specific qualifications and requirements for each credit.

Tax liability can be forgiven, or if already paid, refunded, if a member of the U.S. Armed Forces dies while on active service in a combat zone, from wounds, disease, or other injury received in a combat zone, or from wounds or injury incurred in a terrorist or military action.

Tax, for the year of death and possibly for earlier years, can be forgiven.

In their transition back to civilian life, military personnel may be able to deduct some costs incurred while looking for a new job. Expenses may include travel, resume preparation fees, and out- placement agency fees. Moving expenses may be deductible if the move is closely related to the start of work at a new job location.

If you are in military or naval service on an assigned tour of duty outside the United States and Puerto Rico for a period that includes the entire due date of the tax return, you qualify for an automatic 2-month extension of time without filing the usual Form 4868. If you use this automatic extension, you must attach a statement to the return showing that you met the requirement.

For married persons filing a joint return, only one spouse needs to meet the requirements to take advantage of the automatic 2-month extension.

If you are a member of the Armed Forces, you may qualify to defer payment of income tax that becomes due before or during your military service. You must notify the Internal Revenue Service that your ability to pay the income tax has been materially affected by your military service. Your income tax will be deferred for a period not to exceed 180 days after termination or release from military service. If you pay the income tax in full by the end of the deferral period, you will not be charged interest or penalty for that period. This exception does not apply to the employee's share of social security and Medicare taxes you may owe.

If you are overseas or incapacitated, you can grant a power of attorney to an agent to file and sign your return.

Generally, joint returns must be signed by both spouses. However, when a spouse is overseas, in a combat zone, in a missing status, incapacitated, or deceased, a power of attorney may be needed to file a joint return.

The spouse who expects to be overseas on the due date of the return can file Form 2848 specifically designating that the spouse who remains in the United States can sign the return for the absent spouse.

If the spouse is unable to sign the return because he or she is serving in a combat zone or is performing qualifying service outside of a combat zone, and you do not have a power of attorney or other statement, you can sign for your spouse. Attach a signed statement to your return that explains that your spouse is serving in a combat zone.

Disabled veterans may be eligible to claim a federal tax refund based on an increase in the veteran's percentage of disability from the Department of Veterans Affairs (which may include a retroactive determination) or the combat-disabled veteran applying for, and being granted, Combat-Related Special Compensation, after an award for Concurrent Retirement and Disability.

Many members of the military are able to get their tax returns prepared for free on or off most military bases including overseas locations. The U.S. Armed Forces participates in the Volunteer Income Tax Assistance program sponsored by the IRS. VITA provides free tax advice, tax preparation, tax return filing and other tax help to military members and their families.

These are only some outlines of special IRS guidelines for the military personnel. For a complete comprehensive tax guide for military members, go to IRS Publication 3, Armed Forces' Tax Guide.