Expatriate Taxes for Armed Forces Personnel Overseas

Expatriate Taxes for Armed Forces Personnel Overseas
Updated on April 23, 2024

Many armed forces personnel find themselves being sent overseas for various assignments, which can be a stressful process. This article will address how overseas assignment(s) affect the expatriate taxes of military personnel. If you are being sent to work in a combat zone, you are entitled to various extensions and exclusions.

By executive order, the president has declared a list of areas as “combat zones.” The IRS has published these locations on their website. This list is evolving, so please refer to the list frequently for any updates.

Not Working in a Combat Zone?

If you have reviewed the list of combat zone locations on the IRS website and determined that you are not in a federally declared combat zone, your tax situation will likely not differ much from when you were stateside. You will still report and pay American taxes on your income. As a government employee, you will not be eligible for the Foreign Earned Income Exclusion (FEIE). Furthermore, as a US government employee you will not be subject to foreign taxation and will not claim the Foreign Tax Credit. If you are abroad on the April 15th filing deadline, you will be allowed an automatic two-month extension to file your return by June 15th.

However, if you incur moving expenses for your overseas assignment that have not been reimbursed by the armed forces, you may deduct these expenses on your tax return. These expenses include airfare, temporary storage, temporary housing, moving truck rental, movers, etc. Keep careful track of these expenses, and any reimbursements, for substantiation in the event of an audit.

Working in a Combat Zone?

If you have determined that you are working in a combat zone, you will be entitled to various exclusions and extensions on your American taxes. Active duty military pay, among other types of income earned while working in a combat zone, will not be subject to US taxation. For a complete list of the types of income excluded from US taxation, please see IRS Publication 3.

In addition to combat zone wage exclusion, you will also be eligible to extend the filing deadline of your returns until 180 days after you leave the combat zone. You can notify the IRS of the combat zone extension qualification by sending an email to combatzone@irs.gov. The email should contain the taxpayer’s name, US address, birthday and date of deployment to the combat zone. Social Security numbers should never be included in emails, not even to the IRS.

When this notification is made to the IRS, the IRS will suspend any compliance actions such as audits or collection attempts. Take note: If you already have a balance due with the IRS prior to deployment, interest and penalties will continue to accrue on the balance even while working in the combat zone.

Returns filed claiming the combat zone exclusion and extension should be marked clearly with “COMBAT ZONE” written across the top, and a statement should be attached to the return to include the date of deployment and return.

You will also be eligible to claim any unreimbursed moving expenses as discussed for non-combat zone military personnel above.

Other Items of Note Regarding Expatriate Taxes

Here are a few important things to note regarding the overseas assignment(s) of military personnel:

  • Although employees of the US government, including military, are ineligible to claim the Foreign Earned Income Exclusion, their spouses are not considered ineligible. Therefore, spouses who move abroad with their military partner are eligible to claim the Foreign Earned Income Exclusion on their American taxes on income they earn while working abroad as long as they are not employed by the US government.
  • Service performed outside of a combat zone may be eligible for the combat zone exclusion if the work performed is in direct support of the military operations within the combat zone.
  • If you perform work in a combat zone for any part of a month, even if only one day, you are eligible to exclude all of your military income earned for the entire month from your taxable income when you file your American taxes.

Need Help With Expatriate Taxes?

We also have resources available for military contractors and their tax requirements. If you have any questions about the filing requirements for your American taxes, or if you need help filing for an extension, please drop us a line.

Copyright Greenback Expat Tax Services May 29, 2013

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