Military Armed Forces Tax Deductions

Tax Tips for All Members of the Armed Forces and Military Personnel

Tax-Free Expenses for Members of the Armed Forces

As a member of the armed forces, there are many expenses which may be excluded from your income when assessing what taxes you owe. Such expenses are nontaxable even if their value is reimbursed or they are furnished to you as part of an allowance.

Some examples of tax-free expenses are:

• Uniform allowances
• Basic Allowance for Housing
• Basic Allowance for Subsistence
• Moving expenses
• Temporary lodging
• Travel expenses when on leave between consecutive overseas tours of duty
• Annual round trip for student dependents
• Dependent-care assistance program payments
• Disability payments
• Medical and dental care
• Defense counseling
• Group-term life insurance premiums
• Survivor Protection Plan premiums
• ROTC allowances
• Family Separation Allowance
• Combat zone pay (see below)

Learn more in IRS Publication 3, Armed Forces' Tax Guide

The Combat Zone Tax Exclusion

Do you receive combat pay (Imminent Danger Pay)?

If you are stationed in a combat zone for at least one day out of a month, not only should you receive a nontaxable combat pay allowance for that month, but the entire month's regular salary may be excluded from your taxable income. Any Hardship Duty Pay and Family Separation Allowances you receive may also be excluded.

The current official combat zones are:

• The Arabian Peninsula Area (since January 17, 1991): The Persian Gulf, Red Sea, Gulf of Oman, Arabian Sea (north of 10 degrees north latitude and west of 68 degrees east longitude), Gulf of Aden, Bahrain, Kuwait, Oman, Iraq, Qatar, Saudi Arabia, and United Arab Emirates
• The Kosovo Area (since March 24, 1999): The Federal Republic of Yugoslavia (Serbia and Montenegro), Albania, Adriatic Sea, and Ionian Sea (north of the 39th Parallel)
• Afghanistan (since September 19, 2001)
• Parts of former Yugoslavia (Qualified Hazardous Duty Areas treated as combat zones since November 21, 1995): Bosnia and Herzegovina, Croatia, and Macedonia

In addition, service in an area outside of an official combat zone may be considered (for tax purposes) to be performed in a combat zone if the Department of Defense has declared the service to be in direct support of operations occurring in a combat zone.

The current areas which officially support combat  zones are:

• Pakistan,Tajikistan, and Jordan (since September 19, 2001)
• Kyrgyzstan and Uzbekistan (since October 1, 2001)
• Philippines, for troops with orders referencing Operation Enduring Freedom (since January 9, 2002)
• Yemen (since April 10, 2002)
• Djibouti (since July 1, 2002)
• Somalia (since January 1, 2004)

Learn more in Publication 3, Armed Forces' Tax Guide

More details about excluding combat pay from your gross income and relevant combat pay related questions and answers here: Combat Zone Tax Exclusion FAQ.

You may actually want to report some of your normally nontaxable combat pay as taxable income if you are claiming the Earned Income Tax Credit. Learn more here.

More Military Tax Relief

Do you need extra time to file your taxes, because of your service in a combat zone?

Uncle Sam doesn't want you worrying about having to file your tax return on time when you're out defending our country with your life. If you are serving in a combat zone (or a qualifying area outside of one), you may be able to receive a tax deadline extension of 180 days from the last day of your service, plus the amount of time you had left to file when you first entered the combat zone.

Learn more in Publication 3, Armed Forces' Tax Guide

Do you receive the Earned Income Tax Credit? Do you want to?

The Earned Income Tax Credit may be claimed by certain workers who earn a low income. The credit can reduce the amount of taxes you pay and may increase your tax refund. Many military personnel miss taking the credit because they do not report enough taxable income to qualify for it. The Working Families Tax Relief Act of 2004 and the Gulf Opportunity Zone Act of 2005 gave military personnel the option of reporting some of their untaxed combat pay as taxable income. Doing this may allow you to qualify for the Earned Income Tax Credit.

Learn more about the EITC

Forgiveness of a Decedent's Tax Liability:

If a member of the armed forces dies in service to our country (while on active duty in a combat zone or from wounds received while in a combat zone), then that person's tax liability may be forgiven. If income taxes for the year in which the death occurred have already been paid, they may be refunded.

Learn more in Publication 3, Armed Forces' Tax Guide

New Homebuyer Credit for Military Personnel

The Worker, Homeownership and Business Assistance Act of 2009 extended the deadline of the First-Time Homebuyer Tax Credit for members of the military who serve outside the US. If you serve at least 90 days out of the country (during the period from December 31, 2008 to May 1, 2010), then you have an extra year in which to qualify for the New Homebuyer Credit. You may qualify for either the first-time homebuyer credit or the long-time homebuyer credit. To qualify, you must enter into a contract to buy a home on or before April 30, 2011, and you must close on the purchase by June 30, 2011.

More information on the New Homebuyer Credit