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Military Families Are Eligible for Certain Tax Breaks

Military personnel and their families enjoy a number of tax advantages that are not available to civilians. Read on to find out more about several of the more valuable of these tax breaks.

Combat Pay Exclusion

Part or all of the pay of members of the military serving in a combat zone is tax free. Pay is also tax free for people working in a support area outside a combat zone that has been designated by the Department of Defense and if the service qualified for duty subject to hostile fire or imminent danger pay.

Pay types eligible for exclusion include:

  • Active duty pay earned in any month served in a combat zone
  • Imminent danger and hostile fire pay
  • Reenlistment bonuses if the extension of service took place in a month the service members served in a combat zone
  • Pay for accrued leave that has been earned in any month served in a combat zone
  • The part of a student loan repayment made for the year while serving in a combat zone

Other Nontaxable Benefits

Included among several government pay items excluded from gross income are a base allowance for housing, a base allowance for subsistence, and a uniform allowance.

Moving Expenses

Certain non-reimbursed moving expenses may be tax deductible. The service member must be on active duty and the move must be due to a military order or as a result of a permanent change of station for these expenses to be deductible.

Deadline Extensions

Certain service members -- such as those who are serving overseas -- can postpone most tax deadlines. Qualified military members can get automatic extensions to file and pay their taxes.

Earned Income Tax Credit

There are special rules that permit service members who receive nontaxable combat pay to choose to include that pay in their taxable income. While it may not make sense on the surface, doing so can increase the amount of their earned income tax credit. If they qualify for this credit, the service members who do this could owe less tax or receive a larger refund.

Joint Return Signatures

Typically, both spouses who file a married filing jointly income tax return must sign that return. However, if military service prevents that from happening, one spouse may be able to sign for another or get a power of attorney.

ROTC Allowances

Active duty ROTC pay is taxable. However, certain amounts paid to ROTC students in advanced training are not taxable.

Reserve and National Guard Travel

Members of the reserve forces may be able to deduct their unreimbursed travel expenses on their return. To be eligible for this tax break, they must travel more than 100 miles from their homes to perform their reserve services.

Special Filing Software

The Department of Defense offers a free tax resource for the military community. Known as MilTax, this resource includes tax preparation and electronic filing software, as well as personalized support from tax consultants. There are no income limits restricting its use and eligible taxpayers can use it to electronically file a federal tax return and up to three state returns for free.