Tax & AccountingMay 20, 2021

Wolters Kluwer Tax & Accounting looks at tax provisions available for members of the military and their families

What: While we often think of the US Tax Code when our taxes are due, it has several tax provisions intended to help current and former members of the military and their families. 

Why:
Members of the military not only face dangers in their daily duties, they also sacrifice through separation from their loved ones. Over the years, the US Tax Code has seen several provisions added to help assist servicemen and servicewomen as well as their families by addressing a variety of issues. 

  • Tax liabilities are forgiven in the year that a service member dies while serving in a combat zone or from injuries incurred in a combat zone or from terrorist or military action 
  • Survivors of a participant in a life insurance or retirement plan who died while performing military service are entitled to any benefits that would have been provided to the participant if he or she had returned from service and then died 
  • Death gratuity benefits are excluded from taxable income and may be contributed to a Roth IRA without regard to contribution limits
  • Amounts received for personal injuries or sickness that resulted from combat-related service are excludable from taxable income 
  • Disability retirement pay is excludable from taxable income 
  • All pay received for any month during any part of which the member served in a combat zone or is hospitalized as a result of wounds, disease, or injury incurred while serving in a combat zone is excludable from taxable income 
  • The excluded combat pay may still be counted as income for the Earned Income Tax Credit, the Child Tax Credit, and for IRA contributions
  • Allowances for subsistence, uniforms, quarters, travel and moving are excludable from taxable income 
  • Veterans’ benefits are generally excludable from taxable income 
  • Dividends and proceeds from military government endowment insurance contracts are generally excludable from taxable income 
  • Dependent care assistance programs are generally excludable from taxable income 
  • State veterans’ bonuses and payments for service in a combat zone are excludable from taxable income
  • Qualified base closure and realignment benefits are excludable from taxable income
  • The IRS can provide administrative relief to those in a combat zone such as extension of tax deadlines
  • Military personnel may deduct unreimbursed moving expenses due to a military order and permanent change of station
  • Military personnel may deduct mortgage interest and real property taxes even if he or she receives a housing allowance
  • Qualified reservists are not subject to tax on early distributions and may recontribute to an IRA
  • Reservists also qualify for a travel expense deduction for official travel over 100 miles
  • Employers can receive a tax credit for differential wage payments while an employee is on active duty for more than 30 days

Who: Tax expert Mark Luscombe, JD, LL.M, CPA, Principal Federal Tax Analyst at Wolters Kluwer Tax & Accounting, can help discuss the tax breaks available to military personnel and their families. 

PLEASE NOTE: The content of this article is designed to provide accurate and authoritative information in regard to the subject matter covered. The information is provided with the understanding that Wolters Kluwer Tax & Accounting is not engaged in rendering legal, accounting, or other professional services.

Contact: To arrange an interview with Mark Luscombe or other federal and state tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact Bart Lipinski.

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