IRS Publication 3: Armed Forces Tax Guide

The IRS makes available on their website to all taxpayers a series of various publications about federal income tax.  This article is a summary of IRS Publication 3: Armed Forces’ Tax Guide.

IRS Publication 3 cover special tax topics typically applicable to active members of the United States Armed Forces.

Gross Income

Members of the Armed Forces receive special types of pay and allowances.  IRS Publication 3 notes specific types of income considered taxable as well as excluded from taxation.  In general, combat pay can be excluded from gross income for tax purposes.

Pay included in gross income includes the following:

  • Basic pay (e.g., active duty, back wages, drills, reserve training, training duty)
  • Special pay (e.g., aviation career incentives, diving duty, hostile fire or imminent danger, pharmacy)
  • Bonus pay (e.g., career status, enlistment, officer, reenlistment)
  • Other pay (e.g., accrued leave, personal money allowances)
  • Incentive pay (e.g., submarine, flight, hazardous duty, HALO)

Pay excluded from gross income includes the following:

  • Combat zone pay (i.e., pay for actively serving in a combat zone)
  • Other pay (e.g., defense counseling, life insurance, uniform allowances)
  • Death allowances (e.g., burial services, travel to burial site)
  • Family allowances (e.g., emergencies, evacuation, separation)
  • Living allowances (e.g., basic allowances for housing or subsistence, cost of living allowances)
  • Moving allowances (e.g., dislocation, move-in housing, storage)
  • Travel allowances (e.g., leave between overseas tours, per diem)
  • In-kind military benefits (e.g., legal assistance,

Foreign Source Income

As with non-military individuals, those in the Armed Forces who are United States citizens must report all taxable foreign income on their tax returns.

Community Property

In the event a member of the Armed Forces was married for some or all of a tax year, the member must abide by community property laws of any state where they maintain a permanent residence in the event he and his spouse file separate returns or are divorced during the tax year.

Adjustments to Income

Members of the Armed Forces are allowed to make certain adjustments to gross income to reduce their tax liability.  These adjustments include but may not be limited to the following:

  • Unreimbursed travel expenses related to reservist duties more than 100 miles from their permanent residence
  • Contributions to individual retirement accounts
  • Moving expenses related to a permanent change of station regardless of typical time and distance tests

Combat Pay Exclusion

As noted previously, pay received by a member of the Armed Forces while in an active combat zone is not taxable.  This pay includes but may not be limited to the following amounts as they pertain to a month when serving at least part of that month in an active combat zone:

  • Active duty pay
  • Imminent danger pay
  • Reenlistment bonuses
  • Accrued leave
  • Awards for scientific achievements
  • Student loan repayments

The President of the United States maintains by Executive Order the locations that are considered combat zones for income tax purposes.

Itemized Deductions

Members of the Armed Forces can deduct from gross income either their standard deduction or their itemized deductions.  Itemized deductions commonly used by members of the Armed Forces include but may not be limited to the following:

  • Business expenses
  • Unreimbursed travel and transportation expenses related to certain travel away from your permanent duty station
  • Unreimbursed professional dues
  • Unreimbursed education expenses
  • Repayments of previously reported taxable income to your employer

Credits

Members of the Armed Forces have special rules relating to certain tax credits that reduce the tax liability owed dollar for dollar.  These credit include the following:

  • First-time homebuyer credit
  • Child tax credit
  • Earned income credit
  • Excess Social Security tax withheld credit

Forgiveness of Decedent’s Tax Liability

In the event a member of the Armed Forces dies related to duty in a combat zone or military actions, the member’s tax liability may be forgiven or refunded as appropriate.

Extension of Filing Deadline

Members of the Armed Forces receive an automatic extension to file their tax returns when serving in a combat zone or performing certain other military duties.  The automatic extension is 180 days after either the date when service in the combat zone ends or other qualifying activities cease, plus up to an additional three and a half months depending on the member’s status between January 1 and April 15 of the tax year.

 

If you need help with your federal income taxes or have questions about a letter you have received from the IRS, you can get help by speaking with tax attorney.  You can speak with a tax attorney by completing the form on this web site or by calling the phone number located at the top of this page.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.