Military

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Military basic pay: • Active duty pay • Attendance at a designated military service school • Back wages • Cost of living allowance (COLA) for service members serving in the Continental U.S. (CONUS) • Reserve component (Reserves and National Guard) drill pay • Reserve component training • Training duty The code “A” should be used in the Type field on the Form W-2 entry screen to indicate active duty military wages. Special pay is subject to federal income tax and is included in gross income. However, as with basic pay, special pay earned while serving in a designated combat zone is not taxable. • Aviation career incentives • Career sea duty • Diving duty • Foreign duty (outside the 48 contiguous states and the District of Columbia) • Foreign language proficiency • Hardship duty Additional types of special pay include : • • • • • • • Hostile fire or imminent danger Medical and dental officers Nuclear-qualified officers Optometry Pharmacy Special duty assignment pay Veterinarian

Military members may receive bonus pay. The more commonly seen types of bonus pay are: • Career status • Enlistment • Officer • Extension of service overseas • Reenlistment Unlike basic pay, bonus pay is not subject to FICA withholding. However, it is subject to income tax withholding, generally at a 28% rate. Military bonuses are not reported with any special coding on Form W-2. Therefore, you should pay special attention to differences in boxes 1, 3, and 5 and notice if federal income tax withholding in box 2 seems higher than normal. In those cases, ask the taxpayer if they received any bonuses during the year that could account for the differences. Another form of taxable pay that some military members receive is incentive pay. The following are examples of incentive pay: • Submarine duty

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Flight duty High altitude/low altitude (HALO) Other hazardous duty

Some taxable payments are reported on separate W-2 forms. The most common types of these payments are: • Do-ityourself (DITY) moving expense reimbursement s • Student loan repayments If the taxpayer’s moving expenses exceed the amount of the reimbursement, the taxpayer should claim all additional deductible moving expenses on Form 3903. Any amount reported in Box 12 with code P will be entered on line 4 of Form 3903. Deductible moving expenses: • Costs for moving household goods and personal effects, including expenses for packing and crating. • Cost of in-transit storage and insurance. These costs can only be deducted for a period of 30 consecutive days after the goods were removed from the former home and before they are delivered to the new home. • Travel and lodging expenses from the old home to the new home for all members of the household. Actual expenses can be claimed, or a standard deduction of 20 cents per mile can be claimed. The cost of meals is not a deductible expense Generally, student loan repayment is considered taxable income in the year it is paid. Federal income tax on these amounts is not covered by the Armed Forces. This income is not taxable for FICA. This Form W-2 is an example of how student loan repayment benefits are reported on a separate Form W-2, rather than on the Form W-2 issued that reflects wages. A taxpayer receiving student loan repayment benefits may need to adjust federal income tax withholding on regular wages to cover the tax on student loan repayment income If the repayment is received in a year when the taxpayer is deployed in a combat zone, the student loan repayment is excluded from income. If only part of the year of service was performed in a combat zone, the repayment will qualify for a partial exclusion Use line 21 on the INC screen in TPS to adjust the taxpayer’s wages for excludible student loan repayments. The “repayment of income adjustment” is the appropriate description.

Other payments are taxable:
• • • • • • • Cash in lieu of accrued leave High deployment per diem Reimbursement for certain entertainment/hosting expenses of high-ranking officers

Non taxable are:
Combat pay Family allowances Living allowances Moving allowances .Travel allowances • Death allowances • In-kind military benefits • Other payments Active duty pay earned in any month that the service member was in a designated combat zone is excludible from gross income.

Other types of pay that are earned while the taxpayer was serving in a combat zone, including reenlistment bonuses, pay for accrued leave, and student repayments, are also excludible from gross income. Earnings received while in these combat zones are excluded from taxable income. NOTE: This only applies to Federal Income Tax Withholding (FITW). If the taxpayer served in a combat zone for any part of one or more days during a particular month, they are entitled to an exclusion for that entire month. None of the following types of military service qualify as service in a combat zone. • Presence in a combat zone while on leave from a duty station located outside of the combat zone. • Passage over or through a combat zone during a trip between two points that are outside of the combat zone. • Presence in a combat zone solely for your personal convenience. Military service outside a combat zone is considered to be performed in a combat zone if: • The service is in direct support of military operations in the combat zone. • The service qualifies the service member for special military pay for duty subject to hostile fire or imminent danger. Retirement pay and pensions do not qualify for the combat pay exclusion. The amount of excludible combat pay earned by a service member is reported in box 12 of Form W-2 with code Q Combat zone pay is the only one of these that is excludible from income unless the other types of pay are earned in a combat zone. FICA tax is only withheld from base pay Although combat pay is not taxable, the taxpayer can elect to include combat pay in earned income for calculating the earned income credit. If the taxpayer makes this election, all of his or her nontaxable combat pay for the household must be included in earned income. If the taxpayer is filing a joint return and both the taxpayer and spouse received nontaxable combat pay, each spouse may make his or her own election. For purposes of the additional child tax credit, nontaxable combat pay must be included in earned income. The following are examples of nontaxable family allowances provided to service members: • Certain educational expenses for dependents • Emergencies • Evacuation to a place of safety • Separation pay The following living allowances are available to members of the Armed Forces: • Basic Allowance for Housing (BAH) • Basic Allowance for Subsistence (BAS) • Housing and cost-of-living allowances abroad (whether paid for by the U.S. or a foreign government • Overseas Housing Allowance (OHA) Service members can still deduct mortgage interest and real estate taxes on their residence even if they pay these expenses with their BAH. Several moving allowances are available to members of the Armed Forces: • Dislocation allowance • Limited military base realignment and closure benefits (paid after November 11, 2003) • Costs of moving into military housing costs • Moving household and personal items • Moving a trailer or mobile home • Storage of household goods • Temporary lodging and temporary lodging expenses Travel allowances are also available to members of the military

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Annual round trip for dependent students of service members stationed overseas Leave between consecutive overseas tours Reassignment in a dependent-restricted status Transportation for the service member or dependents during ship overhaul or inactivation Per diem

In the unfortunate instance of the death of a service member, the following allowances are available to surviving family members: • Burial services for the deceased service member • Internment and a burial marker at a Veterans Affairs cemetery • Death gratuity payments for eligible survivors • Travel of dependents to the service member’s burial site Service members and their families may be eligible for several in-kind benefits which are not taxable • Dependent-care assistance program • Legal assistance • Medical/dental care • Commissary/exchange discounts • Space-available travel on government aircraft Other nontaxable payments may be provided to members of the Armed Forces: • Group-term life insurance • Disability, including payments received for injuries incurred as a direct result of a terrorist or military action • Professional education • Reserve Officer Training Corps (ROTC) educational and subsistence allowances • Survivor and retirement protection plan premiums • Uniform allowances for officers • Uniforms furnished to enlisted personnel Active and reserve component military taxpayers receive a LES for each pay period. The LES is equivalent to a civilian pay advisory. In addition to providing certain military-specific information, the LES provides data on the military taxpayer’s • Identification data (name, social security number) • Entitlements • Deductions • Allotments • Federal and state withholding • Charitable donations • Thrift Savings Plan deductions One piece of information not provided on the LES that will be needed to complete the tax return for electronic filing is the employer identification number (EIN). Можешь отправить е-файл без подписи супруга, когда: • Military member stationed overseas 1. One spouse can prepare and sign the return and then send it to the other spouse to sign and file. 2. The military taxpayer can file Form 2848 or another POA before departing for overseas. The spouse may then file the return without the military member’s signature on it. • Military member in a combat zone/qualified hazardous duty area (their spouse can sign the tax return for the military member.) • Military member in missing status (the service member’s spouse can file a joint return and sign for the missing service person) • Military member incapacitated (



Military member died during the year

Usually, expenses for uniform purchase and upkeep are not deductible. Most uniforms can be worn when the taxpayer is off duty, so the expenses related to them are not deductible. Exceptions to this rule include: • Expenses for military battle dress uniforms and utility uniforms (as seen in the picture at right) that cannot be worn off duty are deductible. • Expenses for insignia of rank, corps devices, epaulets, and other similar items are deductible if they do not replace regular clothing. • Expenses for reserve component members’ uniforms are deductible if the uniforms can only be worn when in a pay status (e.g. periods of training or when activated for active duty). Expenses for haircuts are not deductible Military taxpayers can deduct work-related educational expenses if the education meets at least one of the two following tests: • The education is required by the taxpayer’s employer or the law to keep the taxpayer’s present salary, status, or job. • The education maintains or improves skills needed in the taxpayer’s current work. A military taxpayer may deduct the expenses of qualifying education even if the education could lead to being awarded a degree. Taxpayers who are members of a reserve component of the Armed Forces and travel more than 100 miles away from home in connection with their performances of services as a member of the reserves, can deduct their travel expenses as an adjustment to income on line 24 of Form 1040 rather than as a miscellaneous itemized deduction. Members of the Armed Forces may receive a Basic Allowance for Housing (BAH) and use it to pay their mortgage interest and real estate taxes. However, BAH is excludible military pay. Regardless, those expenses are deductible if the taxpayer itemizes The Military Thrift Savings Plan (TSP) is designed like a 401(k) plan. It allows members of the military to make voluntary contributions to a retirement plan. The TSP is a defined contribution plan. Non-taxable combat pay is not included in adjusted gross income (AGI) for the purposes of determining the Saver’s Credit. The Heroes Earned Retirement Opportunities Act (HEROES) was first adopted on May 29, 2006. It allows military personnel to make IRA contributions based on combat pay that is excluded from income

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