The Internal Revenue Service (IRS) observes the month of May as National Military Appreciation Month. Each year, the IRS publishes Publication 3 to remind members of the U.S. military and their families of the potential tax benefits available to them. The highlights from the publication follow:
Combat pay is tax-free. If a member in the military is serving in an area designated as a combat zone, he or she will qualify to have his/her income during that period excluded from federal taxable income. Note that this exclusion is unlimited for enlisted members and is limited for officers and warrant officers.
Unreimbursed travel expenses:
Reservists, whose duties take them more than 100 miles from home, can deduct their unreimbursed travel expenses as an adjustment to income rather than an itemized deduction.
Generally, for moving expenses to be deductible, taxpayers must meet certain distance and time tests. However, members of the Armed Forces can report their moving expenses on Form 3903 regardless of the distance or time test.
Extensions to file:
Service members assigned outside of the United States or Puerto Rico are granted an automatic two-month filing extension. This is even longer for service members working in a combat zone who, typically have until 180 days after the end of their leave from the combat zone.
Members of the Armed Forces may qualify for a deferral of the payment of income tax due before or during their military service by requesting relief. If relief is granted, the service member can be allowed at least 180 days after termination or release from military service to pay the tax.
Low- and moderate-income service members who contribute towards a retirement plan through an IRA or 401(k) can often claim the saver's credit, which can help reduce the tax owed to zero. To claim this credit, use Form 8880. The credit generally provides a greater benefit than a deduction, which only decreases taxable income.
Programs are available to service members and their families through the IRS partnership with Volunteer Income Tax Assistance (VITA).