Tax Deductions for Military Service Members
If you're in the military, the government will issue you a Form W-2, Wage and Tax Statement, which will list the amount of income that is subject to taxation. In some cases, military service in a combat zone may be excluded from taxable income. Commissioned officers' compensation will not be included in Box 1 on the W-2 as taxable income. Be aware that these incomes are still subject to Medicare and Social Security taxes, so the income amount will be shown in Box 3, Social Security wages and Box 5 Medicare wages.
Double check that all excluded pay is correct on your W-2, and is not listed in Box 1. If you suspect errors on your W-2, check with your financial office to ensure all excluded income is accounted for. Use your corrected W-2 to file your tax return.
Military service members are entitled to deductions at tax time for expenses incurred on the job, provided they have not been reimbursed. These deductions lower your tax liability and can include:
- Job training
- Uniform maintenance and costs, including reservists' uniforms if they are unsuitable for off-duty wear
- Dues for professional memberships and publications, excluding officers' club and noncommissioned officers' club fees.
- Moving expenses if you are ordered to permanently change stations during active duty
- Travel expenses, including meals (with limits) mileage, and laundry costs, when traveling away from your permanent duty station for authorized drills and training regiments
Some sources of income for military service members are not subject to taxation, and you may have other options on how to apply these sources of income to different tax credits. These include:
- Nontaxable combat pay can be used to calculate the Additional Child Tax Credit and Child and Dependent Care credit.
- Nontaxable combat pay can be used to calculates eligibility for an IRA
- Military base realignment and closure benefits are excluded
- Dependent care assistance benefits are excluded
- Death gratuity for an Armed Forces member who died after September 10, 2001 is excluded from income.
- National Guard and Reserve members who report for duty more than 100 miles from their home have above the line travel deductions available.
- If a service member dies while in combat, their tax liability is suspended. Any tax already paid will be refunded.
- Combat pay can be included into the Earned Income Tax Credit (EITC) calculation
- If you served on qualified official extended duty, you may be exempt from a five year waiting period to exclude capital gains from the sale of your primary home after May 6, 1997. If the gain was taxed, you may receive a refund.
- Distributions from a qualified tuition program or Coverdell educations savings account may not be subject to 10% tax as long as the beneficiary attended one of the three military academies, and the distribution does not exceed the cost of the education.
