Military, Armed Forces Tax Deductions and Pay
As a member of the United States Armed Forces who is residing overseas in a combat zone on the regular due date of the return
, you may be granted an automatic two or even six month (180 day) tax extension
to file a federal income tax return and pay due tax each year. The 180 day period begins the day you leave the combat zone or the area is no longer designated a combat zone. For example, if you are overseas in a combat zone and away from your residency on or around Tax Day (April 15, 2023)
, then you typically will have until October 15, 2023
to file your 2022 Tax Return.
After the extended date, you will be assessed any applicable late tax penalties. Late payment penalties will be assessed, if owed, following the extension. Generally, for non-military and/or those not serving in a combat zone, a tax extension does not give you more time to pay and you will be penalized for failure to pay your due tax.
There are many tax benefits available to military personnel, including unique tax deductions, combat pay exclusions, and extended deadlines. When you prepare and e-File your 2022 Tax Return on eFile.com, the eFile app will determine the correct tax breaks you qualify for based on your answers to several simple questions. It will also report the right amounts on your Form 1040. However, if you are interested in the details, read on to find information about the various tax concerns that are specific to members of the Armed Forces and how to file military taxes.
See also: IRS Publication 3, Armed Forces' Tax Guide.
Tax Breaks and Deductions for Military Personnel
If you are in the U.S. Armed Forces, you may be eligible for special tax breaks and write-offs. For instance, some types of pay are not taxable (i.e. allowances for uniforms and Reserve Officers' Training Corps, or ROTC) and there are several tax-free expenses you do not have to report on your tax return. However, some military pay is taxable and soldiers may pay federal income taxes. Most military pay is tax exempt, but some military do pay taxes.
As a member of the Armed Forces, there are certain rules that you may be able to apply to tax deductions or tax credits that can lower your tax liability. You may even get more time to file your tax return or pay your income tax. Here are some tax breaks that you might be able to take advantage of:
- Combat Zones Approved for Tax Benefits: As a member of the military, you might serve in actual combat areas or direct combat support areas and/or qualified hazardous duty areas. This may qualify you for a Deadline Extension; if you serve in a combat zone, you may be able to postpone some tax deadlines. If you are eligible for this, you may get an automatic extension of time to file your tax return and pay any taxes that you owe. Additionally, if you receive payment for this service, you may be wondering how much of military pay is taxed. Generally, certain combat pay is not taxable while serving in a combat zone. This type of pay will not be included on your tax return and therefore is not considered taxable income.
- Earned Income Tax Credit or EITC: Your nontaxable combat pay will be used in the calculation of your Earned Income Tax Credit which may give you a larger EITC. Even in this case, your combat pay remains nontaxable. See if you qualify for the EITC.
- Purchase of Residence or Home: Active duty military were entitled to an extended timeline to claim the First-Time Home Buyer Credit which had expired in 2010. However, members of the military and their families affected by the servicemember's temporary living overseas were given until April 30, 2011 to claim the credit. Additionally, military veterans are able to apply for and receive a VA Loan which is guaranteed by the U.S. Department of Veterans Affairs. VA Loans are provided by private lenders, but offer various benefits, such as not requiring a nonpayment and competitively lowering interest rates.
- Sale of Principal Residence: When it comes to selling your home or rental property, you may be entitled to a few exceptions towards capital gains taxes. When selling a home, generally, taxpayers are allowed to exclude a certain amount of the profit from their taxable income if they had used the home as a primary residency for 24 of the previous 60 months leading to the sale. Active duty service members who are away from their property due to a permanent station change can extend this 60 month period to 10 years (from 5 years to 10 years). This means the home would have been a primary residence for 2 of the last 10 years. See IRS Publication 523, Selling Your Home.
- Moving Expense Deduction: If you, as an Active-Duty Service Member, are asked to relocate or change station due to a military order, you can still deduct moving costs on your federal tax return. For all other tax payers, the moving expense deduction has been removed due to the 2018 Tax Reform Act. Some states, such as Massachusetts, still allow moving expenses.
- Housing, Living Allowance: Basic Allowance for Housing, or BAH, as well as Overseas Housing Allowance (OHA) is excluded from taxable income. However, you may be able to deduct different expenses paid for with your BAH, such as mortgage interest or real estate taxes. See also: home deductions you can and can't claim. Additionally, Basic Allowance for Subsistence is also excluded from gross income.
- Uniform Deduction: You may be able to deduct the costs of the purchase and upkeep of your uniforms. These uniforms must be those that you cannot wear if you are off duty. If you get an allowance for your uniform, your deduction must be reduced by that allowance amount.
- Educational Expenses: Work-related education can be deducted if it is required by your employer and it maintains or improves skills needed for the job. Military Tuition Assistance may also pay up to 100% of tuition expenses. Certain educational expenses for dependents may also be deductible. Explore our pages on students and taxes.
- Differential Wage Payments: If you work for a separate job, but leave temporarily for active duty service, your employer can opt in to pay a differential wage. These payments are made during service of more than 30 days and can be all or part of normal wages. These payments are taxable income, but are excluded from social security and Medicare taxes, or FICA.
- Signing Joint Returns: If you are filing a married filing jointly return, it must be signed by both spouses. If your spouse cannot sign the return because of absence due to military duty, you may be able to sign the return for your spouse. Unsure of your filing status? Use this free STATucator to find out now.
- Withdrawing from a Retirement Plan: When you withdraw from a retirement plan early, you may face penalties. However, if you're in the service, you may be able to withdraw from a 401(k) or IRA account early without penalty. Generally, you will qualify if you receive a qualified reservist distribution after September 11, 2001, have been called to active duty for a minimum of 180 days, and made the distribution while on active duty. See more information on retirement plans below.
- Uniformed Services Traditional Thrift Savings Plan, or TSP: As a type of retirement plan, the TSP allows distributions to be included as taxable income unless tax-exempt combat pay was contributed to the plan.
- Capped Interest Rate: As a member of the U.S. Military, your interest rate may be no higher than 6% for a year in which you owe tax to the IRS prior to entering the service. The cap is applied when your service affects your ability to pay your due tax and will stay as long as you are an active member of the military.
It can be hard to keep track of all these breaks and remember to report them on your 2022 Tax Return. Make it easier on yourself: prepare your taxes with eFile.com and the Tax App will help you report all tax breaks you are entitled to as you complete the tax interview.
Military Income: Does Military Receive a W-2, 1099, or Other Form?
Certain military income may result in a Form W-2 being issued. Military retirement income is generally reported on a 1099-R - details below - and these are to be issued or made available to active duty and reserve military members by January 31 following a given tax year. The Defense Finance and Accounting Service (DFAS) makes these forms available online via their myPay program which you can then use to file your taxes via eFile.com. Certain military tax forms include:
- Income for active duty or reserve Army, Navy, Air Force, Space Force, and Marine Corps on a W-2
- Military retiree and annuitant (survivors benefit plan) income reported on Form 1099-R
- Savings Deposit Program (SDP) income shown on 1099-INT.
DFAS expects military to retrieve these forms online or request that they get mailed.
Individual Retirement Arrangements, Retirement Plans
Different types of savings plans have different benefits for the military. These include traditional IRA, Roth IRA, simplified employee pension (SEP) IRA, or a savings incentive match plan for employees IRA, or SIMPLE. See an overview of health savings accounts and flexible savings accounts or different tax benefits from retirement plans.
If you are a member of the Armed Forces, you are considered covered by an existing employer-maintained retirement plan if you made contributions during the year. See retirement plan information on the Form W-2 you receive from your employer.
You can repay or contribute the amounts equal to your qualified reservist distributions you received. As a member of the Armed Forces, you have 2 years to make these repayment contributions. This repayment is nondeductible and will not affect your IRA deduction; report the repayment when you file with eFile.com on Form 8606 and eFileIT. This form is autogenerated by the app.
States with Exempt Military Retirement Income
Does your state tax military retirement pay? If you are retiring from the military on a military pension or retirement plan, consider where you want to retire so you can minimize the taxes taken from your pay.
Many states do not tax military retirement income and are considered the most tax-friendly for military retirees. Some states have certain limited exemptions for military retirement pay. This could be a certain percentage of this pay being tax free or offering certain timeframes for what retirement pay is tax free. This leaves the few remaining states which do not have any exemptions for military retirement pay.
These vary based on the state; some exempt specific amounts of income under certain circumstances. When you file your taxes on eFIle.com, the tax app will automatically determine if your military retirement pay is taxable and generate a state return if it is needed.
If you are wondering where to retire as military, this table outlines how all 50 states tax military retirement income with specific exemptions criteria and amounts; it also includes information on state sales tax and property taxes.
If you have specific questions regarding your state tax exemptions for your military income, contact us once you have created your free eFile account.
Reservists’ Travel Deduction and Moving Allowance
If you travel as a member of the U.S. Armed Forces Reserves, you can generally deduct the costs of travel on your return. This includes unreimbursed travel costs while you are performing reserve duties more than 100 miles from your home. You may also be able to deduct expenses for overnight stays (meals, lodging, etc.) The amount of expenses you can deduct as an adjustment to gross income is limited to the regular federal per diem rate for lodging, meals, incidental expenses, and the standard mileage rate (for car expenses), plus any parking fees, ferry fees, and tolls.
If you are moved overseas, the same deductible expenses apply as well as deducting costs of moving personal goods from storage and/or storing items in a unit as long as the new location remains the main job location. Details on working or living abroad and taxes.
Where do I Mail My Tax Return as Military Overseas?
If you are out of the country as part of a military order and have established residency there to some extent or will be staying there for a while, you should mail your return based on where you currently live. If you need to mail your return while overseas, but you normally live in the states, mail to the foreign address if you send the forms while overseas. See IRS mailing address, including the foreign mailing address.
Who Can Deduct Travel and Moving Expenses?
In order to qualify as a member of a reserve component of the Armed Forces of the United States, you must be in the Army, Navy, Marine Corps, Air Force, Coast Guard Reserve, the Army National Guard of the United States, the Air National Guard of the United States, or the Reserve Corps of the Public Health Service. If, as part of your duty as a reservist, you must travel more than 100 miles from home, you should report this on your 2022 Tax Return. If you are moved permanently to a new station, you may deduct your moving expenses or be reimbursed for related costs such as mileage and lodging. If you are reimbursed, do not include this income as taxable income on your return. If you are not reimbursed, the amount will come as a deduction which will be reported on your return following the year the move occurred.
When you prepare and e-File with your 2022 Tax Return on eFile.com, the eFile app will generate the proper forms and help you complete and file them with your Form 1040. In this case, the form generated is the Form 3903, Moving Expenses - eFileIT.
You may not deduct expenses for travel that does not exceed 100 miles from home as an adjustment to gross income. In this case, you must complete Form 2106 and deduct the expenses as an itemized deduction on Schedule A. The eFile app will generate this form and schedule if you qualify for it as you complete your 2022 Return on eFile.com.
If you are in Reserve Officers' Training Corps (ROTC) advanced training and get an allowance for education with room and board, these amounts are not considered taxable. Don’t get this confused with active duty ROTC pay which is considered taxable income. Additionally, find student tax credits and deductions.
Tax-Free Expenses for Members of the Armed Forces
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 - not pay
- Family Separation Allowance
- Combat zone pay (see below).
These types of pay are tax free and are not subject to tax; they are excluded from your gross income, but may have to be reported on your return. e-File your 2022 Tax Return on eFile.com to easily report this information.
Combat Zone Filing Deadline Extension
Most individuals must file their tax return by the regular due date (April 15). If you were serving in a combat zone or outside the U.S., you are eligible for an extension. Note that any normal tax extension is not an extension of time to pay any tax owed by the regular due date of the return. Therefore, interest and/or penalties might be charged on any taxes owed from April 15, 2023 to the date the taxes are paid. If you miss the April 15 deadline, you have until October 15, 2023 to e-file your return.
Start Federal 2022 Tax Return
All military personnel serving in a designated combat zone or contingency operation on April 15, 2023 are granted an automatic 180-day extension of time to file and time to pay. The 180-day extension period does not begin until after you leave the combat zone. You may add to the 180 days the number of days that you had left to file when you first entered the combat zone. You also get the automatic combat zone extension if you were in the hospital on April 15, 2022 as a result of injuries received while on duty in a combat zone. In this case, the 180-day extension period begins after you are released from the hospital and you may add to it the amount of time you had left to file when you first entered the hospital.
You may also receive an extension of time to contribute to a retirement plan.
The current official combat zones are:
- Afghanistan Area: Jordan, Kyrgyzstan, Pakistan, Tajikistan, Uzbekistan, Philippines, Djibouti, Yemen, Somalia and Syria.
- The Arabian Peninsula Area: 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 the United Arab Emirates, Jordan, Lebanon, Turkey (east of 33.51 degrees east longitude).
- The Kosovo Area: The Federal Republic of Yugoslavia (Serbia and Montenegro), Albania, Kosovo, Adriatic Sea, and Lonian Sea (north of the 39th parallel).
Combat Zone Tax Exclusion
If you are stationed in a combat zone for at least one day out of a month, not only should you receive a tax free 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. 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. 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 about special Earned Income Credit rules for the military.
More Military Tax Relief
- 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.
- 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. Income tax payments that the deceased member submitted in the year the death occurred may be refunded. Additionally, survivors of Armed Forces members who's cause of death is related to active duty service receive a tax-free death gratuity of $100,000.
See what other tax deductions you may qualify to claim on your 2022 Tax Return. You can also use our free tax calculators and tools to calculate taxes or determine eligibility for certain tax credits. Then, to get a complete idea of your taxes, see the free tax estimator before you complete and e-File Your 2022 Tax Return on eFile.com. The eFile app will calculate and report the correct tax breaks based on your answers to several simple questions.
Contact an eFile.com Taxpert if you have more questions about military tax deductions.
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