Military Tax Tips: 6 Common Tax Situations Military Members Need to Know

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Military Tax Tips
Military members and their families often have unique tax situations. These tips can help you prepare your taxes and ensure you get the largest tax refund possible.
Table of Contents
  1. Live and Work Outside Your Home of Record
  2. Combat Zone Tax Exemption
  3. Being Stationed Overseas But Not In a Combat Zone
  4. Other Non-Taxable Income
  5. Tax Extensions for Military
  6. National Guard and Reserve Travel Costs
  7. Other Tax Situations for Military Members & Their Families
  8. H&R Block Can Handle Your Tax Situation
    1. File Taxes Online with H&R Block:
    2. Taxes Don’t Have to Be Difficult

I dread filing my taxes every year. To me, it’s almost as bad as going to the dentist. There are so many rules for filing your taxes. And, as military members, interpreting those rules can be even more complicated.

But, it doesn’t have to be that way. There are a lot of resources for members of the military to help you file your taxes on time and correctly. Here are a few common situations that apply to military members and their families that you need to be aware of when filing your income taxes, and some tax tips to help you understand how to maximize your return.

Military Tax Tips

Live and Work Outside Your Home of Record

Members of the military typically choose their Home of Record as their state of residence. Others change their state of residence over the course of their careers. Often members of the military change that state of legal residence during their career if they plan on returning to a state in retirement. Many members of the military have found the allure of Colorado, Florida, or Texas too much to pass up and plan to come back to the state in retirement, for example.

Your home of record or state of legal residence is where you would pay your state taxes if your state requires you to pay state tax. Several states do not have a state income tax, and others exempt portions of military income from state taxes.

Federal law prohibits another state from taxing the wages of nonresident military members stationed in that state. So, if you are a resident of South Carolina but stationed in North Carolina, you won’t have to pay North Carolina state taxes. South Carolina would tax your military income instead.

Things are a little different and more complicated if you take a second job or moonlight after you’re done with your day job. If a member of the military takes a second job that’s not with the military, like working a shift a local retail store, for example, you would most likely have to file a state income tax return as a nonresident for those non-military wages.

Combat Zone Tax Exemption

Combat Zone Tax Exclusion

Income earned in a combat zone is tax-exempt. You won’t have to show that amount of income earned from combat on your tax return. DFAS will list both taxable and tax-exempt incomes on your W-2, Wage and Tax Statement if you have qualifying time in a combat zone. Also, if you’ve served in support of a combat zone, you may qualify to have your income excluded from your taxes. Many pilots and members of the Navy see this type of qualification.

Another benefit of deploying to a combat zone is that you may still be eligible for the Earned Income Tax Credit (EITC). The Earned Income Tax Credit is a refundable tax credit for workers with low to moderate incomes. The EITC can increase your tax refund. You don’t have to report any nontaxable military pay on your income taxes, such as basic pay earned in a combat zone, imminent danger pay, hazardous duty pay earned in combat, Basic Allowance for Housing (BAH), and Basic Allowance for Subsistence (BAS).

However, you can decide to include your nontaxable combat pay in your calculations as earned income counted towards the Earned Income Tax Credit, even though you’re not paying federal or state income taxes on that combat pay. Including combat pay as earned income for the EITC calculations may reduce the amount of tax you have to pay and may increase your income tax refund through the EITC. (Learn more on the IRS website).

You should calculate your income taxes using both your combat pay as earned income for the EITC and without it to find out what’s the best refund for you and your family. Deploying to a combat zone and reducing your family’s income also often helps members of the military to qualify for tax credits for low-income earners that they otherwise wouldn’t qualify to receive.

Use the H&R Block Tax Calculator to help you determine if you should use your combat pay toward the EITC.

Being Stationed Overseas But Not In a Combat Zone

If you’re stationed overseas, you treat your income tax and tax filings exactly like you would if you were in the United States. You must continue to file your federal income tax and state taxes for your state of legal residence by the filing date.

There are no automatic extensions or exclusions simply for being stationed overseas when you’re not in the combat zone.

Other Non-Taxable Income

One great tax benefit that members of the military receive is that some income is non-taxable. As mentioned above, combat pay is not taxable. But other allowances such as the Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS) are not taxable either. These allowances can account for a significant portion of a military member’s total compensation, especially for junior Soldiers, Sailors, Airmen, and Marines.

Tax Extensions for Military

Tax Extension

Members of the military serving in a combat zone can receive an automatic extension if needed to file their income taxes. Members of the military and government civilians working with the armed forces who are serving in a combat zone receive a tax extension from the IRS. The extension extends filing deadlines, payments, suspends audits, and suspends enforced collections for 180 days until after the service member or civilian has left the zone.

National Guard and Reserve Travel Costs

If you are a member of the National Guard or Reserves, you may be eligible to deduct portions of the cost of your work-related travel on your income tax return. The tax deductions only apply for any unreimbursed costs for travel as you perform your duties. So, for example, if you’re TDY and are reimbursed by the government for your travel and have no out of pocket expenses, you wouldn’t be able to deduct that from your income taxes when you file.

If you have unreimbursed costs to travel when you perform your National Guard or Reserve duties that are more than 100 miles away from your home, you may be able to deduct your travel costs on your income taxes. Here are more details on National Guard and Reserve travel deductions.

Whether you’re serving in a combat zone, overseas, or simply at a stateside base, there are a lot of things to consider when filing your taxes as a member of the military. Which state do you file for with your state taxes? What if you work in multiple states, moonlight, or work on a side hustle at night?

Taxes are already complicated. And, the unique situations that arise from being in the military doesn’t make calculating and filing our taxes any easier. There are many unique residency and income calculation challenges that you should be aware of when filing your income taxes.

Other Tax Situations for Military Members & Their Families

There are many more tax situations that apply to military members and their families. In fact, it can be a part-time job just keeping up with them all. Thankfully, there are resources available to you so you don’t have to spend your valuable time learning the tax code. If your base is large enough, you may have access to volunteer tax preparation services through the Volunteer Income Tax Assistance (VITA) program.

Another option is using tax preparation software from a trusted company, such as H&R Block.

H&R Block Can Handle Your Tax Situation

H&R Block has been producing tax preparation software for years, and they have worked closely to ensure their software can handle military tax situations. They also provide a variety of different software versions that can handle situations many military members and their families find themselves in, such as small business or freelance income, rental properties, and more. And depending on your tax situation, you may qualify to file your federal taxes free.

For a limited time, you may be eligible to file your tax return for free, even if you own a home, itemize deductions, have charitable contributions, and have medical or childcare expenses. Learn more at the H&R Block website.

File Taxes Online with H&R Block:

H&R Block gives you the freedom to file your tax return anytime, anywhere, on any device. H&R Block provides a Maximum Refund Guarantee that makes it easy to get the most money possible.

H&R Block Online Features:

  • Quickly & easily import your W2. Simply take a photo of your W2 from your smartphone or tablet, upload it and your information is added.
  • Import last year’s tax return from any other tax prep service. Just drag and drop a pdf. H&R Block’s software does the rest.
  • Free EITC: EITC is now free on any H&R Block Online product.
  • H&R Block Online is mobile optimized, making it easy to complete your tax return on your mobile phone or tablet.

Here are the H&R Block Online versions:

  • FREE – Best for new filers, simple tax returns and, for a limited time, you can file your 1040EZ, 1040A, and 1040 Schedule A for free.
  • DELUXE – Best for getting the most deductions.
  • PREMIUM – Best for investors or small business owners.

Taxes Don’t Have to Be Difficult

Taxes can be complicated. But modern online software simplifies many individual tax situations. H&R Block’s software makes it easy to complete your taxes, get any questions answered, and maximize your tax return. They even back it up with a guarantee.

Start Your Tax Return for Free with H&R Block

How has being in the military impacted you filing your taxes? What challenges do you face when filing each year?

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About Hank Coleman

Hank Coleman is a Major in the U.S. Army and a writer who focuses on personal finance, investing, and retirement. Hank holds a Master’s Degree in Finance and runs the site Money Q&A. His writing has been featured on sites such as The Motley Fool, Military.com, and many others. You can follow him on Twitter at @MoneyQandA.

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  1. Mel M says

    While the article mentioned getting a military member’s taxes done for free at a VITA site on base, it didn’t mention getting your taxes done for free (for DIYers) via H&R Block software available through http://www.militaryonesource.mil. I have been doing my taxes via H&R Block software on militaryonesource for a number of years, and have been quite satisfied.

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