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Tax Tips Tuesday: Military Tips for Filing Accurate Tax Returns

By The Tax Institute at H&R Block

Military families have extra things to keep in mind as tax time. Special tax circumstances apply to service members, and being familiar with the following four tax topics can help them file accurate tax returns and not overpay their taxes.

1. Know types of pay are taxed differently
Combat pay is not taxed, but that money can be included as earned income to qualify for the Earned Income Tax Credit and the Child Tax Credit. Among the types of income not included in gross income when calculating taxes are allowances for living, family, death and moving.

2. Take tax breaks for relocations and everyday expenses
Following are some tax breaks service members may not know they could be claiming:

  • Military personnel who move due to a permanent change of duty may be eligible to deduct unreimbursed expenses necessary for the relocation of their household
    • Taxpayers don’t have to itemize their deductions to take this tax break
    • When the next move is back to civilian life, some job search expenses incurred may be tax-deductible as itemized deductions
    • The cost and upkeep of military uniforms also may be qualified itemized tax deductions
    • Members of the armed forces can deduct reimbursed travel expenses if they travel more than 100 miles away from home to report for reserve duties.

3. Be aware of filing rules based on time in combat zones
Unless on a tour of duty outside the United States or Puerto Rico, or serving in a combat zone, military personnel must submit their tax returns by the April deadline unless they apply for a six-month extension. To avoid late fees and interest, taxpayers must estimate their taxes owed and submit payment with the extension.

Those on a tour of duty outside the United States or Puerto Rico have an automatic two-month extension to file their returns, making their deadline June 15 (Monday, June 16 in 2014). Applying for an extension to file gives them an additional four months.

When serving in a combat zone, exceptions are made to when tax returns are due. The extension to file tax returns and even pay taxes due is 180 days after the later of these dates:

  • The last day served in the combat zone or the last day the area was designated as a combat zone
  • The last day of any continuous qualified hospitalization for an injury from service in a combat zone.

4. Understand state residency rules for spouses
Service members often retain residency status in their home states, despite frequent moves during active duty. The Military Spouse Residency Relief Act allows spouses to also retain residency status in their home state if they move with their military spouse. Under these rules, the spouse’s pay earned where they are stationed is not taxed there, but instead in the home state.

A civilian will not automatically be granted the same residency of their service member spouse. Instead, residency must be declared and the spouse must meet these three requirements to qualify for relief:

  • The spouse moves with the service member to the duty state in compliance with military orders
  • The spouse is living in the state solely to be with the service member
  • The spouse and service member share the same home state.

Misinterpretation of the residency relief act has likely resulted in many service members and their spouses paying state taxes they didn’t owe. If a service member thinks errors were made on past returns, amended returns can be filed for the past three years, which includes tax years 2010, 2011 and 2012. The deadline for 2010 returns is April 15, 2014.

Many H&R Block tax professionals are specifically trained and educated to assist military families with preparing their tax returns; last year, H&R Block filed tax returns for more than 40 percent of active, reserve and retired service members.

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