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Armed Services Personnel
If you are in the military, you should
receive Form W-2, Wage and Tax Statement, which reports your military pay. Some
or all of the pay you received for military service in a combat zone may have
been excluded from your taxable income. Commissioned officers' excludable
compensation is limited to the maximum enlisted amount. The military paymaster
should have already calculated this exclusion, and it should not appear on your
Form W-2, Box 1. The excluded portion of your pay is exempt from federal income
tax, but remains subject to Social Security and Medicare taxes, and is included
with Social Security wages on your Form W-2, Box 3 and with your Medicare wages
and tips in Box 5. Depending on your state, the excluded pay may be taxable to
If the wages reported on your Form W-2, Box 1 include military
pay that should have been excluded from your income under the combat zone
exclusion provisions, you must get a corrected Form W-2 from your finance
office. You cannot exclude on your return the amount that was incorrectly
reported on Form W-2, Box 1 without getting a corrected Form W-2.
You may be able to reduce your taxes by deducting certain unreimbursed expenses related
to your employment with the military. Examples of some of the items you may be
able to deduct include:
- Professional dues (but not dues paid to an officers' club or a noncommissioned officers' club) and subscriptions to
- Cost and cleaning of military battle dress uniforms (including rank insignia, medals, accoutrements, epaulets, and swords)
and reservists' uniforms if you cannot wear them off duty
- Moving expenses if on active duty and the move is based on a
permanent change of station order (PCS order)
- Travel, meals (with
limitations), mileage, and laundry expenses if incurred while traveling away
from home (for example, to perform authorized drills and training duty). For
military travel deductions, "home" is your permanent duty station and may not
necessarily be where you or your family live.
Special Laws and
Other special tax relief provisions available to members of
the Armed Forces and their families include:
- The option to use your
nontaxable combat pay to calculate certain credits such as the Additional Child
Tax Credit and the credit for Child and Dependent Care Expenses.
- You may
also be able to use your nontaxable combat pay to calculate your eligibility to
make a contribution to an IRA (and take a deduction and/or credit and receive a
- If you received a military base realignment and closure
benefit, the benefit is generally excludable from income.
- Benefits you
received under a dependent-care assistance program are nontaxable.
you received a death gratuity as a survivor of a member of the Armed Forces who
died after September 10, 2001, you may exclude the amount you received from
income. You may be able to claim a refund if you paid tax on a death gratuity
you received because of a death that occurred after September 10,
- The five-year period used in determining whether you can exclude
gain from the sale of your main home may be suspended during the period you or
your spouse served on qualified official extended duty as a member of the Armed
Forces. This change applies to any sale of a main home after May 6, 1997; you
may be able to claim a refund if you paid tax on a gain from a sale after that
If you received a distribution from a qualified tuition program (QTP)
or a Coverdell education savings account (Coverdell ESA), you may not have to
pay the 10% additional tax on the part of the distribution that normally would
be included in gross income. To qualify, the designated beneficiary must have
attended one of the three military academies (U.S. Military Academy at West
Point, U.S. Naval Academy at Annapolis, or U.S. Air Force Academy at Colorado
Springs), the Coast Guard academy, or the Merchant Marine academy and the
distribution must not exceed the costs of advanced education attributable to
- Members of the National Guard or Reserve may qualify
for an above-the-line deduction for travel expenses when reporting for reserve
training/duty over 100 miles from their home.
Income tax liability is
forgiven (does not have to be paid) for an active member of the U.S. Armed
Forces who dies from wounds, disease or injury received in combat. The tax
liability is forgiven for the tax year in which the death occurred.
Additionally, tax liability is forgiven for any other year ending on or after
the first day the member served on active duty in a combat zone. Any tax
liability that qualifies to be forgiven, yet has already been paid, will be
refunded. Unpaid taxes for prior years will also be
Specific Tax Tips
The inclusion of combat pay in
the earned income calculation for EIC remains an option for military members.
Electing to include the combat pay may allow you to increase your EIC.
Alternately, electing the option to exclude combat pay from your earned income
calculations may allow you to qualify for EIC. The election offers military
members who have nontaxable income due to the combat zone exclusion provision a
unique opportunity to determine the highest allowed EIC for their tax