Special Tax Benefits for Individuals in the Armed Forces

Armed Forces Special Tax Benefits

Even those in the military are responsible for income taxes, but as a honored service man or woman there are ways that these members can reduce their tax liability and even qualify for certain credits as evidenced below.

Tax-Free Pay

If an enlisted personnel, warrant officer, or commissioned warrant officer is serving in a “Combat Zone” (defined in IRS Publication 3, Armed Forces Tax Guide) or provides direct support to a “Combat Zone” then their pay could be partially or entirely tax-free. Pay includes but is not limited to, active duty pay in any month you served in a combat zone, imminent danger pay, and reenlistment bonus if earned in a month you served in a combat zone.

Commissioned officers are eligible for the exclusion, but it is limited to the highest rate of enlisted pay for each month serving in a combat zone.

Also note that if you are in a combat zone that you can receive an automatic extension to file your taxes.

Tax Deductions

Reservists who need to travel more than 100 miles from their home can deduct unreimbursed travel expenses. If a service member needs to move they may be able to deduct unreimbursed moving expenses; this would usually apply if the taxpayer has a permanent change of station.
For uniforms, if the rules say that the service member cannot wear it off-duty then they can deduct the cost to upkeep their uniform (less any uniform allowance they may receive).

Tax Credits

If a service member is receiving combat pay then a decision to include this as taxable income must be made. The reason for taking an otherwise non-taxable payment and reverting it to taxable income would be to increase the amount of the Earned Income Tax Credit. The maximum refundable tax credit for 2016 is $6,269. A service member should look to see what would provide them the stronger benefit by either excluding their combat pay or to include it as income to increase their Earned Income Tax Credit.

For more information, or if you have any questions about this or any other tax matter, please contact your Wilkin & Guttenplan advisor or email us at This email address is being protected from spambots. You need JavaScript enabled to view it..

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