Service in the Armed Forces presents unique challenges to service members not encountered by other taxpayers. The Congress and the IRS have established certain special provisions of the tax code to benefit members of the armed forces. This is a list of the most common provisions and some of the associated rules. The full Armed Forces’ Tax Guide can be found on the IRS website or contact us with questions about your individual situation.
What’s Exempt from Taxation
- Basic Allowance for Housing and Basic Allowance for Subsistence are exempt from taxation. Uniform allowances, travel reimbursements, family separation pay, and payments in kind (such as free legal assistance or commissary privileges) are also exempt.
- Base pay earned while serving in a combat zone is exempt from income tax. For commissioned officers, this is limited to the amount earned by the highest rate of enlisted pay applicable during the period of service. Reenlistment bonuses received while serving in a combat zone are also exempt from income tax. Social Security and Medicare taxes are not suspended when serving in a combat zone.
What’s Deductible from Adjusted Gross Income
- The costs to acquire, alter, and maintain uniform items are deductible if military regulations prohibit you from wearing them off duty. This includes combat uniforms and specialized insignia, but does not include items that could be considered replacements for civilian clothing.
- For service members who itemize deductions, costs incurred to acquire personal protective equipment or other gear purchased for use on duty, such as flashlights, knives and multi-tools, eye and ear protection, body armor, and hydration carriers are deductible. The cost to reimburse the government for lost or destroyed equipment that was issued to you is also deductible.
- Armed Forces Reservists are entitled to deduct unreimbursed travel expenses for duty performed more than 100 miles from home. This deduction is limited to the amount the government normally reimburses employees for duty performed in the same location (maximums outlined in the Joint Travel Regulation) and must be reduced by the amount of any reimbursement received. This is a deduction FOR adjusted gross income, rather than FROM.
- The unreimbursed costs of professional dues and qualifying work-related education. In order to qualify, education must be required by law or by regulation or must serve to maintain or improve skills needed in your present job.
- Unreimbursed moving expenses associated with a permanent change of station or temporary change of station move are deductible.
What’s Not Deductible from Adjusted Gross Income
- Uniform items that could be considered replacements for regular clothing, such as service or dress uniforms (other than insignia), belts, and low quarter shoes.
- Officers’ club and non-commissioned officer’s club dues as well as dues paid for membership in organizational societies, such as the Order of Saint Barbara.
- Cost of organizational or social events, such as Hail and Farewell, seasonal balls or banquets, or Family Readiness Group events.
- Travel expenses to and from your usual place of duty, unless assigned to a temporary location that is reasonably expected to last less than one year.
- If your service materially affects your ability to pay, then you may qualify to defer payment of income tax that becomes due before or during your military service for a period that includes your full term of service plus 180 days.
- Your deadline to file your taxes, pursue administrative relief, file appeals, etc. with the IRS is extended if you are serving in a combat zone or hospitalized due to injuries sustained in combat. The period of extension is at least 180 days after the period of service in a combat zone or hospitalization ends, plus the remainder of the time you would have had before the deadline when your combat service began.
- Up to $250,000 of gain from the sale of a home may be exempt from taxation under certain circumstances. Members of the Armed Forces receive special dispensation when calculating the period of occupancy required before this exemption can be claimed.