Serving Uncle Sam: Tax Breaks for the Military
Nothing can make up for the hardship of serving in the armed forces. But the government does offer some special tax breaks so that soldiers don’t have to add income taxes to their list of worries. If you serve in the military, here are some of the breaks that you might find helpful for your taxes.
Key Takeaways
- You don’t have to include combat pay as taxable income, however, it can count as earned income when claiming the Earned Income Tax Credit (EITC).
- Enlisted members, warrant officers, or commissioned warrant officers can exclude reenlistment bonuses, pay for accrued leave, and student loan repayments for tax purposes.
- You typically can deduct qualified unreimbursed moving expenses if you’re a member of the armed forces on active duty and you move because of a permanent change of station.
Military tax breaks
Nothing can make up for the hardship of serving in the armed forces. But the government does offer some special tax breaks so that soldiers don’t have to add income taxes to their list of worries. If you serve in the military, here are some of the breaks that you might find helpful for your taxes.
Combat pay doesn't count as income and is not taxable
While you don’t have to include combat pay as taxable income, it could provide a boost when figuring your Earned Income Tax Credit (EITC), which can reduce the amount of tax you owe and may even help you get a refund.
- By including combat pay when calculating the credit, you avoid reporting no earned income and not qualifying for the EITC.
- When you calculate the credit, you must include all or none of your combat pay in the calculation—you can’t include just part of it.
If you are an enlisted member, warrant officer, or commissioned warrant officer, you can also exclude other items from your income for tax purposes, including:
- reenlistment bonuses
- pay for accrued leave
- student loan repayments
Penalty-free retirement plan withdrawals
If you’re serving in the military reserves, you might be able to take early withdrawals from IRA and 401(k) accounts without penalty. To qualify for this exemption, you must have been called to active duty after September 11, 2001 for more than 179 days, and you must make the withdrawal while you are on active duty.
Extension of filing deadlines for those serving in combat zones
Members of the military serving in combat zones get an automatic 180-day extension from the IRS for filing tax returns, paying taxes and filing refund claims. The automatic extension also applies to making qualified contributions to an IRA. However, this exception does not apply to Social Security and Medicare taxes.
TurboTax Tip:
In honor of our nation's military personnel, all enlisted active duty and reserve military can file free federal and state taxes with TurboTax Online using the TurboTax Military Discount.
Other benefits for soldiers
Here are some other tax benefits for military personnel:
- Maximum interest rate capped at 6%. As a member of the military, you cannot be charged more than 6% a year on any money you may have owed the IRS before you entered military service. The reduced rate applies only if your service materially affects your ability to pay and applies to the interest the IRS charges you while you are a member of the military.
- Travel expenses for reservists can be written off. If you are a member of the reserves and you travel more than 100 miles away from home in connection with your service, you can deduct your unreimbursed travel expenses on your return as a more generous adjustment to income rather than as an itemized deduction.
- Moving expenses might be deductible. You generally can deduct these expenses if you are a member of the armed forces on active duty and you move because of a permanent change of station.
- Death benefits to survivors are not taxable. Survivors of armed forces members who die while on active duty receive a $100,000 tax-free death “gratuity” from the government. The gratuity is also paid to survivors of retirees within 120 days of retirement if the death is determined to be service-related.
- Forgiveness of tax liability in the event of death. Members of the armed forces who die while on duty in a combat zone or in support of a combat operation are forgiven any tax liability they may owe the IRS. If you already paid the tax, that amount will be refunded to your survivor.
Enlisted active duty and reserve military can enjoy TurboTax Online for free
In honor of our nation's military personnel, all enlisted active duty and reserve military can file free federal and state taxes with TurboTax Online using the TurboTax Military Discount. The #1 best-selling tax software, TurboTax easily handles military tax situations including:
- military and civilian income—including combat pay, BAS and BAH
- military-related expenses—TurboTax will find every deduction you deserve
- completed a PCS—TurboTax will determine your state of residence
Simply start your TurboTax Online return and use your military W-2 to verify rank, and your savings will be applied when you file. Get started today for free.
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