Tax Deductions & Credits for US Military Service Members

August 31, 2022

Most US military personnel are subject to the same taxes as any other American. However, there are a number of tax credits and deductions available for service members. This will help you reduce your annual tax bill or increase your refund.

In this guide, we’ll look at the military tax deductions and credits you may be eligible to claim.

Taxable And Nontaxable Income for Military Personnel

Not all income that US military personnel receive is taxable. Some types of income are excluded from taxation altogether.

Military income that is taxable includes:

• Active duty pay
• Special and incentive pay (e.g., submarine, flight, hazardous duty, overseas extensions, HALO)
• Reserve training pay
• Bonuses
• Military service academy pay
• Student loan repayments
• Accrued leave or mustering-out payments
• Lump-sum payments rendered on separation or release

Military income that is not taxable includes:

• Pay for active service in a combat zone or Qualified Hazardous Duty Area
• Living allowances (e.g., BAH, BAS, OHA)
• Disability and medical benefits
• Family separation allowances
• Temporary lodging
• Uniform allowances
• Educational assistance
• Legal assistance

Note: While the above items are nontaxable, you will still need to factor them into certain financial considerations. For example, while pay for service in a combat zone is excluded from taxation, you would still include it in your gross income amount when calculating how much you can contribute to an IRA.

To get a better understanding of the military tax deductions and credits you can claim, let’s go over a few of the most common examples.

US Military Tax Deductions and Credits

1. Combat Pay

As a military service member, you can exclude your pay from taxation on a monthly basis as long as you spent at least one day in a combat zone during that month. This also applies if you are in a Qualified Hazardous Duty Area.

In addition to your basic pay, you can also exclude other types of income received during that month, such as:

• Bonuses
• School loan repayments
• Imminent danger/hostile fire pay
• Leave benefits
• Awards and incentives

Retirement pay and pensions do not qualify for the combat zone exclusion.

2. Moving Expenses

If you move due to a permanent change of station, you can deduct unreimbursed moving expenses. This includes:

• Packing and crating your possessions
• Hiring a moving van or trailer
• Purchasing moving insurance
• Renting temporary storage for your possessions

3. Travel Expenses

You can deduct certain unreimbursed expenses when traveling for duty-related purposes. This does not apply if you are traveling for personal reasons. Deductible travel expenses may include:

• Airfare
• Meals
• Lodging
• Laundry services

If you are a reservist, you can deduct travel expenses if your service requires you to travel more than 100 miles from your home.

4. Retirement Account Early Withdrawals

If your military service creates a financial hardship that requires you to make an early withdrawal from an IRA, 401(k), or other retirement account, the IRS may waive the penalties that would typically apply. (Your withdrawals will still count as income, however, and may be subject to taxation.)

5. Uniform Expenses

Most uniform-related expenses are not deductible. However, some can be. This includes:

• Uniforms that you are prohibited from wearing while off duty
• Articles that do not replace regular clothing, such as insignia, epaulets, and swords

In either of these cases, you can then deduct the unreimbursed costs of upkeep.

6. Professional Dues

You can deduct dues paid to a professional society that is directly related to your military position, such as an engineering society. This does not apply to officers’ clubs.

7. Post-Military Expenses

Even after leaving the military, you may be able to claim certain deductions. When reentering civilian society, you can claim tax deductions for certain work-related expenses, such as:

• Education
• Travel
• Moving costs
• Resume preparation
• Job placement agency fees

Claiming a Military Tax Extension

In addition to deductions and credits, most military service members can also claim a six-month tax filing extension. To do this, simply file IRS Form 4868. If for some reason you cannot claim the full six months, you may still qualify for a two-month extension.

If you are stationed in a combat zone, you will receive an automatic filing extension until six months after leaving that combat zone.

What If I’m Behind on Filing My US Expat Taxes?

Every US citizen is required to file an annual tax return no matter what country they live in. This is as true for military personnel as for anyone else. However, many Americans are unaware of this obligation.

If you’re one of the many service members who didn’t know you were required to file a tax return, don’t panic. The IRS provides an amnesty program to help expats come into compliance without facing any penalties. It’s known as the Streamlined Filing Compliance Procedures.

To use this program, all you have to do is:

• Self-certify that your failure to file was an accident, not willful
• File the last three delinquent income tax returns and pay any delinquent taxes you owed during that time (with interest)
• File a Foreign Bank Account Report (FBAR) for each of the last six years

This will bring you into compliance with IRS regulations.

Get Expert Help for Your Overseas Tax Return

We hope this guide has helped you understand what military tax deductions and credits are available for US service members. If you still have questions, we’d be happy to answer them. In fact, we can even prepare and file your tax return on your behalf.

At Greenback Expat Tax Services, we specialize in helping expats around the world manage their US tax obligations. Just contact us, and we’ll help you in any way we can.

Learn more about our services and flat-fee pricing to file your overseas taxes.