Tax reliefs for military taxpayers

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Filing your taxes is normally a stressful exercise.  And when you are employed in the armed forces, attending to the tax matters becomes tough, particularly when you are in a combat zone.  The IRS provides a number of reliefs for such people.

Filing requirements

If you are a military taxpayer, you get the right of extending the date of filing tax return by six months like an ordinary taxpayer.  You must file Form 4868 to get extension until October 15 to file your returns.  You can submit this form before the April deadline date by e-mail or by post.  The amount of tax you owe must be sent along with the request for extension.  However if you are paying the tax by credit card or by an authorized electronic withdrawal, you need not send the form for extension itself.

There is no approval communication from the IRS after you send the extension request.  However if the request is denied due to the late filing, IRS will inform the denial to you.

Remember, all these extensions are for paperwork only.  If any amount is due towards your tax, it must be paid before the April deadline.  If you fail, interest will be charged on the unpaid tax and you may be subject to penalties for paying late.

If you are posted outside the United States, or you are abroad on duty for the entire period allocated for filing, then the situation changes. You get automatic further extension of two months to file your taxes.  There is no need to file any form.  You can just send your return and the tax due, if any, by June 15.  While filing, you need to write ‘taxpayer abroad’ on the top of your Form 1040 with a statement explaining your present posting situation.

Where to file

The place where you should file your return depends on where you are posted.  If you are posted within the United States, then you can send your return and the payment to the IRS center near to your place of posting.  For example if you are posted in New York but your residence is in California, then you should file your return to the service center for New York.  However if you are posted overseas and have an APO address, then post your return to the service center in Philadelphia.

These guidelines change drastically if you are posted in a combat zone.  In that situation most of your military pay and reimbursements will be exempt from the Federal tax.  You will also get automatically extended deadlines for tax return filing, payment of taxes, and submission of refund claims or similar actions with the IRS.

Let us see precisely the combat zone related extension for you.  As a normal taxpayer you get 3 ½ months –up to April 15-to file a return.  However you can get an additional extension for the number of days you were in combat zone during this period.  Suppose you enter the combat zone by January 1 and were in the combat zone during the entire extension period, then you could get total extension of 285 days.

In addition to this concession of extension, the dates for tax collection examination of your returns are dramatically extended. No penalties or interest on taxes will be charged.

Normally IRS works with the military in order to get information about personal serving in combat areas.  However if IRS is not up-to-date, then the military taxpayers, their spouses or their representatives have many options for extensions or exclusions.

You can contact IRS at a special e-mail with the name, address and date of birth.  You should never give your social security number in this email.  If the military taxpayer or his/her spouse receives from IRS a tax notice, it can be deferred by sending it back to the IRS with the words “combat zone” entered on top in red ink mentioning the date of deployment.

Deferment of payments

New military personnel can qualify for a deferment of taxes even though they are not in a combat zone.  If they meet eligibility guidelines, they can show their inability to pay taxes on time due to their military service.  Usually the payment deadline date is extended up to six months after the military service ends.  No interest is charged or no penalty is levied during this time.  The active military personnel must request this deferment, it is not granted automatically.  They should prove that they can’t pay the tax bill due to their military service.

The earned income tax credit for military personal

The combat pay, which is non-taxable, can be added to your earnings while computing the amount of the earned income tax credit.  This is a great break for military taxpayers.

When soldiers sell their home because they are re-deployed, they can get a break on capital gains even though they don’t own the property for a long time.  The military family tax relief act of 2003 exempts such homeowners from the requirement of keeping home ownership for a period of two years in the past five years.  So when they move towards their service commitments, they qualify for full exclusion.

Parents making use of education savings accounts for their son or daughter heading to a service academy can do so without any tax problems.  In the past, such distributions were subject to 10 per cent penalty, but now appointments in military school are considered scholarships, excluding the distributions from penalty provisions for them.

The National Guard and reserve personnel can deduct their travel and lodging costs while traveling overnight for training even though they don’t itemize these deductions when they file their return.

The HERO (Heroes Earned Retirement Opportunities) Act provides a chance to military taxpayers to contribute to tax favored retirement accounts.  In the past, the combat pay being non taxable, contributing to an individual retirement account (IRA) out of that money was not allowed.  However under this act the combat pay money can be considered for contribution purposes.  As the law is enforced with retrospective effect, the military taxpayers can amend their returns for 2005 to make IRA contributions.

There is more tax help available now.  Service-persons can get information on tax at many U.S. embassies and consulates.  IRS has made available a special web page for military taxpayers giving relevant information and updates.  Don’t hesitate to talk with any of these agencies to get the help you need.


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