Serving in the armed forces can be a very rewarding occupation, but one that also brings its fair share of challenges and worries. The good news is that the government offers a number of tax breaks that can help to ease the financial and emotional burden that a life in the military can create. In this article we’ll take a look at what deductions you might be entitled to and the tax credits you may be missing out on.
You won’t need to pay income tax if you receive combat pay because it doesn’t count as income. However, you could include it when calculating your Earned Income Tax Credit (EITC). In doing so you can avoid reporting that you have no earned income and qualify for EITC payments. When figuring out your EITC credit, you must make sure that you include the full amount and not just part of it.
If you are an enlisted officer, commissioned warrant officer or a warrant officer, you can also exclude things from your income such as student loan repayments, accrued leave payments and reenlistment bonuses.
If you are currently serving in a combat zone you will automatically receive a 180-day extension for filing your tax return, making tax payments or claiming a tax refund. This extension also applies if you make IRA contributions.
Those serving in the military reserves may also need to make early withdrawals from 401(k) accounts or their IRA. The good news is that you can do this without any penalties. To be exempt from paying penalties you will need to have been called for active duty after Sept. 11, 2001 and have served for over 179 days. You can only make withdrawals while in active duty.
You may already be aware of Tuition Assistance (TA), but did you also know you can claim any work-related training as a deduction too? For example, if you are a serving military member with a degree in human resources and you are dealing with personnel support as part of your role, you could take further training to enhance that role and make a deduction for these training costs.
While you might not be able to claim for transport costs to and from work, you can claim for compulsory travel that falls outside of normal commuting travel. For example, if you need to travel from your usual place of duty for a meeting, you may be able to claim back these costs. It makes no difference whether you travel by car, rail, taxi or bus. These transportation costs could also cover the maintenance of your car if you use it for travel that falls outside of military cost orders.
Uniforms are an essential part of military service. They need to be clean, pressed and look sharp. In order to keep your uniform looking its best you will no doubt need to invest in good dry cleaning, alterations and the purchase of devices and insignia. It is reassuring to know that these costs can all be claimed back as expenses.
Many military members fail to make the most of the tax breaks available to them because they either do not know about them or simply forget to claim them. Over time, you could be throwing away a lot of money! By educating yourself about the latest tax information and the deductions and credits that are available to military members you can ensure you get what you are entitled to and help loved ones to avoid financial hardship.