If you are in the military, we thank you for everything that you do. And Uncle Sam appreciates your service as well – the government recognizes your sacrifice and rewards you with a big basket of tax breaks. Here are five of them:
1. State tax break. If your declared residency is in one state, you can continue that legal residency even if you and your family are transferred to another state. That’s a real benefit for members from a tax-free state such as Texas or Florida. That rule used to apply only to service members, but since 2009 military spouses have been able to maintain their state of residency too. A word of caution: If your spouse is employed in the state in which your family is stationed and state income taxes are withheld, a tax return will need to be filed in that state to recoup those taxes.
2. Combat pay tax break. If you are serving in a combat zone, your pay will be tax free, which is great news. If you are a military officer your tax-free pay may be subject to a cap. Don’t overlook the Earned Income Tax Credit on your tax return. Your pay may qualify you for the valuable tax credit even though your combat pay isn’t taxable.
3. Moving expense tax break. Active duty personnel can deduct any moving expenses they incur in connection with a permanent change of station. And once you are out of the military, you can claim moving expenses if your move is related to the start of a new job in a new location. TurboTax will figure out if you qualify.
4. Other pay tax breaks. If you receive uniforms or a uniform allowance, that isn’t taxable income to you. Neither are moving and storage expenses provided by the government, legal assistance, commissary discounts, professional education, survivor benefit and life insurance premiums, and basic allowances for housing and assistance.
Travel allowances are not taxable, either, including transportation for you and your family during ship inactivation, per diem travel allowances, leave between overseas tours, space-available travel on government aircraft, and round trip travel for dependent students.
If you are a student in the ROTC, you don’t have to pay tax on the allowance that you receive for your participation in advanced training. This rule doesn’t apply to any active duty pay that you receive.
5. Other deductions on your tax return. If you are in the National Guard or military reserve, you may be able to deduct your travel expenses, including meals, lodging and transportation, if you travel more than 100 miles from home and are away overnight. The cost of military uniforms that aren’t worn off-duty, including their cleaning and upkeep, also are deductible, reduced by any uniform allowance that you receive.