For federal tax purposes, the United States
Armed Forces includes commissioned officers, warrant officers, and enlisted
personnel in all regular and reserve units under control of the Secretaries of
the Defense, Army, Navy, and Air Force. The United States Armed Forces also
includes the Coast Guard, but it does not include members of the United States
Merchant Marine or the American Red Cross. As a member of the United States
Armed Forces, special tax considerations are given for the following items:
- Taxable Income for Military Personnel
- Nontaxable Items
- Moving Expenses
- Combat Pay
- Exclusion of Gain from a Home Sale
- Overnight Travel Expenses of
National Guard and Reserve Members
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Income for Military Personnel
Members of the United States Armed
Forces receive many different types of pay and allowances. Some are included
in gross income whereas others are excluded from gross income.
following items are subject to tax and must be reported on your tax return
unless the pay is for service in a combat zone as designated by the president
of the United States:
- Active duty pay
- Special pay, such
as aviation, diving, foreign duty, hardship duty, hostile fire or imminent
danger, overseas extension, special duty assignment, etc.
- Bonuses, such as enlistment, re-enlistment, career
status, officer, overseas extension
- Armed Services academy pay
- Accrued leave or mustering-out payments
- Lump-sum payments made
upon separation or release
- Student loan repayments
pay, such as submarine, flight, hazardous duty, high altitude/low altitude
Certain pay and allowances that members
of the United States Armed Forces receive may be excluded from income, such
- Pay for active service while in a combat zone or a qualified
hazardous duty area
- Living allowances, such as BAH (Basic Allowance
for Housing), BAS (Basic Allowance for Subsistence), and OHA (Overseas Housing
- Disability benefits
- Medical benefits
- Educational assistance
- Legal assistance
- Family separation
- Temporary lodging for certain orders
- Moving allowances
Some excluded income items
may have to be used to calculate certain tax benefits on your tax return even
though they are not subject to tax. For example, excluded combat pay is
included in income for purposes of calculating the Additional Child Tax Credit
as discussed in the Combat Pay section.
member of the Armed Forces, if you move because of permanent change of
station, you do not have to meet the usual time and distance tests to deduct
moving expenses. A permanent change of station includes:
- A move
from your home to your first post of active duty
- A move from one
permanent post of duty to another
- A move from your last post of duty
to your home or to a nearer point in the United States. The move must occur
within one year of ending your active duty or within the period allowed under
the Joint Federal Travel Regulations.
If the military moves your
spouse and dependents to or from a different location than your location, the
moves are treated as a single move to your new main job location.
Certain items provided by the government because of a permanent change of
station are not included in your income, such as:
- The value of
moving and storage services
- Dislocation allowance
- Temporary lodging allowance
- Move-in housing
Generally, if the total reimbursements or allowances
that you receive from the government are more than your actual moving
expenses, the excess is included in your wages on Form W-2, Wage and Tax
However, some reimbursements or allowances
(other than dislocation, temporary lodging, temporary lodging expense, or
move-in housing allowances) that exceed the cost of moving may not have been
included in your Form W-2. This excess must also be included in your gross
Moving allowances you receive as a military base
realignment and closure benefit may be excluded from income. Generally,
payments under the Homeowners Assistance Program (HAP) made after November 11,
2003 are excluded from income.
However, the excludable amount
cannot be more than 95% of the fair market value of the property for which the
payments were made, as determined by the Secretary of Defense before public
announcement of intent to close all or part of the military base or
installation, minus the fair market value of the property as determined by the
Secretary of Defense at the time of sale.
Any part of the
payment that is more than this limit is included in income.
You can deduct reasonable unreimbursed moving expenses for moving household
goods and personal effects and reasonable travel and lodging expenses. Use
Form 3903, Moving Expenses, to deduct these unreimbursed expenses,
including the qualified expenses that exceed your reimbursements and
If you are a member of the United
States Armed Forces serving in a combat zone, some of your pay may be excluded
from income. Even if you only serve for one day out of the month in a combat
zone, the entire exclusion for that month is allowed. Examples of excludable
income include active duty pay earned in the month you served in a combat
zone, imminent danger/hostile fire pay, and a re-enlistment bonus if the
re-enlistment occurs in the month you serve in a combat zone.
combat zone is an area that the President of the United States designates by
Executive Order to be an area in which the United States Armed Forces are
engaging or have engaged in combat. Members serving in a qualified hazardous
duty area designated by statute have the same benefits as members serving in a
combat zone designated by Executive Order of the president. The wages shown in
your Form W-2, Wage and Tax Statement, Box 1 should not include military pay
excluded from your income under the special combat zone exclusion provisions.
If it does, you will need to obtain a corrected Form W-2 from your finance
office. You cannot exclude as combat pay any wages shown in Form W-2, Box
See irs.gov for a
complete listing of designated combat zones.
Generally,military service outside a combat zone is considered to be
performed in a combat zone if the service qualified you for special military
pay for duty subject to hostile fire or imminent danger.
of the following types of military service qualify as service in a combat
- Presence in a combat zone while on leave from a duty station
located outside the combat zone
- Passage over or through a combat zone
during a trip between two points that are outside a combat zone
- Presence in a combat zone solely for your personal convenience
You may elect to include combat pay in your earned income for purposes of
calculating certain tax credits. You should determine your EIC and the credit
for Child and Dependent Care Expenses both with and without using the combat
pay in your calculations. Elect the option for each credit that provides you
with the largest amount of credit. Combat pay must be included in income when
calculating the Additional Child Tax Credit. This benefit for the EIC and the
Additional Child Tax Credit may allow you to claim a refund, even if you have
no tax liability or earned income to report on your return.
Note: Including combat pay in calculation of these tax benefits does not
make your combat pay taxable. Do not include any previously excluded combat pay
in your wages on your tax return.
Generally, you can
receive an automatic six-month extension to file your return by filing Form
4868, Application for Automatic Extension of Time To File U.S. Individual
Income Tax Return, by the regular due date of your return. However, you
can qualify for an automatic extension of time until June 15 without filing
Form 4868 if on an assigned tour of duty outside the United States and Puerto
Rico during a time that includes the due date of your return. You should attach
a statement to the return you file showing that you met the requirements for
this automatic extension. If you need more time beyond June 15, you can request
an additional four-month extension to October 15. Write "Taxpayer Abroad"
across the top of Form 4868 and file Form 4868 by June 15. These extensions
are for filing only, not for paying any balance due. Interest will be charged
on any tax not paid by April 15.
There is also an automatic
extension for filing returns, paying taxes, filing claims for refunds, making
timely contributions to an IRA, making estimated tax payments, and taking
other actions with the IRS when serving in a combat zone or qualified
hazardous duty area. This extension is generally 180 days from the total of
- The date you left the combat zone or hazardous duty
area (or the last day the area qualifies as a combat zone or hazardous duty
- The number of days remaining before the regular deadline,
starting from the date you entered the combat zone or hazardous duty area
If you entered the combat zone before the filing period began, your
deadline is extended by the entire filing period.
Exclusion of Gain
from a Home Sale
Generally, a taxpayer must have owned and lived in
their home as a principal residence for two years of the five-year period
ending on the date of sale of the home (ownership and use tests) to be able to
exclude $250,000 of the gain ($500,000, in most cases, if Married Filing
Jointly). However, if you were serving on qualified official extended duty in
the military, you can elect to suspend (for up to 10 years) the five-year test
period ending on the date of sale of your principal place of residence. This
means that you may be able to meet the two-year use test even if you did not
actually live in your home for at least the required two years during the
five-year period ending on the date of sale.
For example, Jose
bought and moved into a house in 2006, lived in it as his main home for 2 and
one half years, and then did not live in it for the next six years because he
was on qualified official extended duty. He sold the home at a gain in 2015.
To meet the use test, Jose chose to suspend the five-year test period for the
six years of qualifying official extended duty. Therefore, the five-year test
period consists of the five years before going on qualifying official extended
duty. The ownership and use tests are met because Jose owned and lived in the
home for 2 and one half years during this test period.
period of suspension applies when the duty station is at least 50 miles from
the residence (or while the person is residing under orders in government
housing) for a period of more than 90 days or for an indefinite period. You
cannot suspend the five-year period for more than one property at a time. You
can revoke your choice to suspend the five-year period at any time.
If any tax has previously been paid on a home sale that qualifies
for this tax relief, an amended return may be filed to claim a refund.
Generally, you have three years from the date you filed your original return
to file your claim for refund. If you amend a return to use this tax relief,
write "Military Family Tax Relief Act" in red across the top of Form 1040X,
Amended U.S. Individual Income Tax Return.
sell your home due to a move to a new permanent duty station and do not meet
the ownership and use tests, you can exclude gain on the sale of your home,
but the maximum amount of gain you can exclude will be reduced.
Overnight Travel Expenses of National Guard and Reserve Members
you are a member of the National Guard or Reserves and must travel away from
home to perform your service (for example, for a drill or a meeting) in a
location that is more than 100 miles away from your home, you are allowed an
adjustment to income on Form 1040 for related travel expenses incurred even if
you do not itemize your deductions. Allowable expenses include expenses for
overnight lodging, transportation, and meals. The amount of the allowable
expenses cannot exceed the federal government daily per diem amounts
applicable for that location.
Special tax provisions
apply to members of the Armed Forces who:
- Die while serving in a
combat zone or die from wounds, disease, or injury incurred while serving in a
- Die from wounds or injury incurred in a terrorist or
military action while a U.S. employee
For deceased military
members who served in a combat zone, income tax does not have to be paid for
the tax year in which they died or for any earlier year ending on or after the
first day the member served in the combat zone in active service. If any of
this tax has previously been paid, it will be refunded. Additionally, any
unpaid taxes for prior years do not have to be paid, and any prior year taxes
paid after the date of death will be refunded.
Priscilla entered a combat zone December 1, 2013 and died in the combat zone
March 31, 2015. Income tax does not have to be paid for tax years 2013, 2014,
This provision also applies to a member of the Armed
Forces serving outside the combat zone if the service was in direct support of
military operations in the combat zone, and the service qualified the member
for special military pay for duty subject to hostile fire or imminent
The date of death for a member of the Armed Forces who
was in a missing status (missing in action or prisoner of war) is the date
their name is removed from missing status for military pay purposes, even if
death actually occurred earlier.
For military U.S. employees
who die from wounds or injury incurred while U.S. employees in a terrorist or
military action, income tax does not have to be paid for the tax year in which
they died or for any earlier year beginning with the year before the year the
wounds or injury occurred. For example, Martin died in 2015 of wounds incurred
in a terrorist attack in 2009. Income tax does not have to be paid for 2008,
2009, 2010, 2011, 2012, 2013, 2014, or 2015. Refunds are
allowed for the tax years for which the period for filing a claim for refund
has not ended.
The death gratuity is a one-time payment of $100,000 to
the surviving family of a deceased military member. For deaths occurring 120
days after retiring, the benefit paid to survivors of a deceased Armed Forces
member is $12,420. This entire amount is tax-exempt.
Additional benefits are available through the Servicemen's Group Life
Insurance (SGLI) program. The SGLI benefits are also tax-exempt. You may roll
over the SGLI or death gratuity payment into a Roth IRA or Coverdell ESA
within one year of receiving the payment. The rollover amount is considered
part of the account.
For IRA contribution purposes, your
compensation includes nontaxable compensation pay. This will allow you to
consider all of your pay when determining the amount of eligible
If you are a reservist who is called to active duty for a
period of more than 179 days, you may withdraw funds from your IRA, 401(k),
403(b), or other similar qualified plan, you will be exempt from the 10%
additional tax for early withdrawal. The distribution is still subject to