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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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.
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
- Active duty pay
- Special pay, such as aviation,
diving, foreign duty, hardship duty, hostile fire or imminent danger, overseas
extension, special duty assignment, etc.
- Reserve training pay
- Bonuses, such as enlistment, re-enlistment, career status, officer,
- Armed Services academy pay
- Accrued leave
or mustering-out payments
- Lump-sum payments made upon separation or
- Student loan repayments
- Incentive 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 as:
- Pay for active service while in a combat zone or a qualified hazardous
- 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
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.
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
- Dislocation allowance
- Temporary lodging expense
- Temporary lodging allowance
- Move-in housing allowance
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 Statement.
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 income.
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
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 allowances.
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.
A 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,
See irs.gov for a
complete listing of designated combat zones.
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.
None of the following types of
military service qualify as service in a combat zone:
- Presence in a
combat zone while on leave from a duty station located outside the combat
- 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
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 following:
- 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 area)
- 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.
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.
The 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
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.
you 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 combat
- 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.
For example, 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, or 2015.
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 danger.
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
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.
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.
contribution purposes, your compensation includes nontaxable compensation pay.
This will allow you to consider all of your pay when determining the amount of
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