Tax Tips for Military Families: Maximizing Refunds in 2024

What is taxable income for the military?

Military pay can be complicated because there are rules on what’s taxable - meaning what you pay taxes on, and what you don’t. Generally, pay is taxable, such as your base pay. Also taxable are special pay, reserve training pay, bonuses, Armed Services academy pay, accrued leave or mustering-out payments, and incentive pay.

But your allowances such as basic allowance for housing, commonly known as BAH, is tax exempt. But if you mistakenly put it on your tax return by accident, the IRS is unlikely to remove it automatically. Meaning you will have paid too much in taxes and didn’t keep more money in your pocket.

If you itemize, don’t take the standard deduction, and you own your house while collecting BAH, your mortgage interest and real estate taxes remain deductible, even if you pay these expenses with your BAH.

If you’re serving overseas: your overseas housing allowance (OHA) isn’t taxable either, nor is your cost-of-living adjustment (COLA). Neither are family separation pay and most moving allowances.

There are even more breaks and benefits that aren’t taxable income for military and veterans, but you should talk to your Tax Pro to make sure you’re claiming all the income properly.

Commonly asked questions for military and veteran taxpayers

• Can I deduct my military uniform? Full-time active duty can’t, but reservists can if they aren’t reimbursed.
• Is there a work clothing tax deduction? Again, no, work clothing – even when it’s not a uniform – isn’t deductible.
• Are military haircuts tax deductible? No, there’s no deduction for a military haircut.
• What is the military mileage rate? MALT, or Monetary Allowance in Lieu of Transportation is only paid for when you and your family are moving for a permanent change of station (PCS). The payment is the current mileage allowance for up to two personal vehicles when moving on PCS orders to a new duty station. You don’t get to take a deduction on mileage driving to and from work. You are eligible for a deduction for travel if your Reserve Duty is more than 100 miles and you stay overnight to perform your Reserve Duty. Then the IRS allows you to deduct the amount you spend for work-related travel and lodging, as well as up to 50 percent of the cost of your meals.
• Are military retirement contributions deductible? Yes.
• Can I deduct moving expenses while in the military? Yes, if you move because of a PCS, you can deduct reasonable unreimbursed moving expenses. This is a really nice perk and a difference between military and civilian tax breaks.
• Are work-related education classes and school write offs? Not as an expense for employment. However, you may be eligible for either of the education tax credits, the American Opportunity Tax Credit (AOTC) or Lifetime Learning Tax Credit.
• If I’m in the military stationed overseas, do I pay taxes? Yes, you still file a tax return and pay taxes in your home state, even if you’re stationed overseas.
• What is the best way to keep good military records? Track everything related to your tax return job and income. Keep records like prior tax returns, receipts, canceled checks, health insurance documentation, and other documents that support an item of income, a deduction, a credit appearing on your tax return, or a payment of taxes for the return. Pro tip: it’s best practice to keep your tax records for seven years in the unlucky event that you are audited by the IRS.

How will my taxes change if I’m serving overseas in a combat zone?

If you’re an active-duty military member and stationed in an officially declared combat zone, there is even more you should know! First, your combat income is generally nontaxable for each month that you spent at least one day in the combat zone—meaning you won’t pay taxes on that income.

Second, you have more time to file your tax return and pay any taxes owed, because you get an automatic 180-day extension. But just because you’re given more time doesn’t mean you have to wait until the final deadline. File as soon as you have all the information you need.

Remember, you must file! If you fail to file or pay your income taxes, you risk penalties and interest from the IRS--like the failure-to-file and the failure-to-pay penalties.

There are many more special rules and considerations for military taxpayers. Find an office near you and work with a Tax Pro today.

About the Author

Mark Steber is Senior Vice President and Chief Tax Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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