If you or a family member are on active duty in the military, there are important tax breaks available to you. For example, all qualifying military pay earned by enlisted personnel and warrant officers and by commissioned officers up to specific limits serving in combat zones-—or hospitalized as a result of a wound or injury while serving in a combat zone-—are excluded from gross income. The exclusion for hospitalization does not apply to any month that begins more than two years after the termination of combat activities in the zone.
In addition, military personnel serving in designated combat zones and civilians who are serving in support of these military members in designated combat zones, or those who are hospitalized outside the United States as a result of an injury received in a combat zone, can receive extensions on filing and paying their taxes. That means that they do not have to file or pay taxes until 180 days after their last day in the combat zone or hospitalization. The extension also generally applies to the spouses of military personnel who are serving in combat zones who wish to file a joint return.
FILE ELECTRONICALLY FOR FREE
If you are in the armed forces, or a federal reservist or National Guard member, and your adjusted gross income is $ 62,000 or less (threshold is as of 2015), you are eligible for an Internal Revenue Service program called Free File. Free File makes it possible for you to gain free access to commercial online tax preparation and electronic filing services. If you qualify, you can use these services to compile and file your tax returns online at no charge using software provided by participating tax software companies. To learn more, go to the IRS Website at www.irs.gov and click on the Free File icon on the home page.
ACCESS TO IRAs
Thanks to the Heroes Earned Retirement Opportunities (HERO) Act, members of the military serving in combat zones are allowed to make contributions to a traditional individual retirement account or Roth IRA based on their tax-free combat pay. Before this law took effect in 2006, soldiers who received tax-free combat pay generally did not qualify to set aside any of their earnings in tax-advantaged IRAs.
HOW TO FIND HELP
To find out more information about how the tax laws that apply to those in the armed forces, turn to IRS Publication 3, “Armed Forces’ Tax Guide,” which is available online. You can access it by going to www.irs.gov, then clicking on “Forms & Pubs” then on “Current Forms & Pubs” and finding the section entitled “Armed Forces’ Tax Guide.” You can also call the IRS toll free at 1-800-829-1040.
(Updated and reviewed 2016)
Copyright, The American Institute of CPAs