Military Exemptions: Retirement, Combat Pay, & Tax Deductions

No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. Senator Rosen has consistently advocated for Nevada’s servicemembers. In the National Defense Authorization Act for Fiscal Year 2023 (NDAA), which Senators Rosen and Blackburn voted for and helped advance out of committee, servicemembers received a much-needed 4.6% pay increase.

If you are reimbursed, do not include this income as taxable income on your return. If you are not reimbursed, the amount will come as a deduction which will be reported on your return following the year the move occurred. You must include a statement with the return when it is filed indicating the dates you were in the combat zone. If you receive a notice from the Department of Revenue regarding a collection or examination matter, return the notice to the Department with the appropriate designation written at the top of the notice and on the envelope so that any action can be suspended.

Partial Month Service in a Combat Zone

To qualify, the contractor needs to be supporting the US armed forces in a designated combat zone. Additionally, they need to live outside the US long enough to meet either the physical presence test or the bona fide residence test. Contractors or employees of contractors supporting the U.S. Armed Forces in designated combat zones may not qualify to claim the foreign earned income exclusion https://turbo-tax.org/combat-zone-tax-exclusions/ because they maintain an abode within the United States. However, the change introduced by the Act will provide tax relief for such qualifying individuals. If you are stationed in a combat zone for at least one day out of a month, not only should you receive a tax free combat pay allowance for that month, but the entire month’s regular salary may be excluded from your taxable income.

Of that amount, $1,500 is excluded from gross income under section 112(b) and $6,399 is taken into account in determining the gross income of both spouses. Any form of pay earned while on deployment in a combat zone is excluded from federal income tax. Armed Forces in designated combat zones, also may qualify for the foreign earned income exclusion. There are many tax benefits available to military personnel, including unique tax deductions, combat pay exclusions, and extended deadlines. When you prepare and e-File your 2022 Tax Return on eFile.com, the eFile app will determine the correct tax breaks you qualify for based on your answers to several simple questions. However, if you are interested in the details, read on to find information about the various tax concerns that are specific to members of the Armed Forces and how to file military taxes.

Amount of Pay Excluded: § 1.112-1 (a) Combat-Zone Compensation Exclusion

This federal tax break on military income is intended for military members assigned to a combat zone. In general, it excludes basic pay (with certain limits) from federal income tax while it is earned in the combat zone. These tax breaks apply to other military-related jobs, which we’ll explore below. Enlisted military members, warrant officers and commissioned warrant officers participating in military operations in a combat zone may be eligible for the CZTE, and there’s no cap on how much combat pay they can exclude from their taxable income. The monthly dollar limit is the monthly amount excludable from the officer’s income under section 112(b) as amended. Beginning in 1966, the monthly dollar limit for periods of active service after 1965 became $500.

A commissioned warrant officer is not a commissioned officer under section 112(b) and is entitled to the exclusion allowed to enlisted personnel under section 112(a). Compensation, for the purpose of section 112, does not include pensions and retirement pay. Armed Forces of the United States is defined (and members of the Armed Forces are described) in section 7701(a)(15). A servicemember who serves, or has served, in a combat zone can exclude up to 100% of combat pay from income. Visit IRS’s Tax Exclusion for Combat Service for more information. These types of pay are tax free and are not subject to tax; they are excluded from your gross income, but may have to be reported on your return.

Special Rules Regarding Tax-Exempt Combat Pay and Benefits

In this case, you must complete Form 2106 and deduct the expenses as an itemized deduction on Schedule A. The eFile app will generate this form and schedule if you qualify for it as you complete your 2022 Return on eFile.com. If you have specific questions regarding your state tax exemptions for your military income, contact us once you have created your free eFile account. The combat zones are determined by the Commander-in-Chief. They are subject to change depending on mission requirements and other variables. Some combat zone designations have expiration dates, while others are open ended.

If you believe you are entitled, and your W-2 reflects your full, unadjusted annual pay and benefits, contact your military pay office to issue a corrected W-2. The web pages currently in English on the FTB website are the official and accurate source for tax information and services we provide. Any differences created in the translation are not binding on the FTB and have no https://turbo-tax.org/ legal effect for compliance or enforcement purposes. If you have any questions related to the information contained in the translation, refer to the English version. You have 180 days plus the number of days you served in a combat zone or qualified hazardous duty area (QHDA) to file your return. After the extended date, you will be assessed any applicable late tax penalties.

The Military Wallet does not include all card companies or all available card offers. If applicable, Capstone will provide a letter including names and locations visited with draft vouchers during week 5 of the course. Fellows should submit the Hostile Fire Pay / Combat Tax Exclusion request through their local pay office. Simply start your TurboTax Online return and use your military W-2 to verify rank, and your savings will be applied when you file.

Tax-excluded military basic pay is capped at the highest rate of enlisted basic pay plus imminent danger/hostile fire pay. So, you will need to check current military pay charts to see what the tax-exempt limit for military officers may be in the current tax year. On the other hand, there is a monthly cap for commissioned officers serving in a combat zone that depends on the highest rate of enlisted pay, plus imminent danger or hostile fire pay. For military and civilian personnel of the US government, the amount of income that can be excluded from tax is already shown on Form W-2. The amount of wages shown in box one does not include any combat pay. In other words, the combat zone exclusion has already been factored into the income reported to the IRS.

● You’re serving in an area that’s designated as a combat zone by a presidential executive order.● You’re in an area that the Department of Defense designated as directly supporting a qualifying combat zone operation. We can help you claim the Foreign Earned Income Exclusion or Combat Tax Exclusion on compensation earned as a contractor. We also make sure we disclose your foreign assets and investments accurately, so you are fully compliant with IRS requirements. Get started with one of Greenback’s expert accountants today, and learn more about combat zones. Ryan started The Military Wallet in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then.

CRSC payments are tax-exempt and not included in gross income. If your income is more than the amount shown, you need to file a tax return. You may not deduct expenses for travel that does not exceed 100 miles from home as an adjustment to gross income.

Hazardous Duty Pay Is Tax Exempt

That’s why we provide features like your Approval Odds and savings estimates. US citizens may be required to disclose any bank accounts, investments, and other types of financial assets held at foreign banks and financial institutions for the Combat Zone Tax exclusion. There may be certain time limits and exclusions for this type of pay. The Military Wallet has partnered with CardRatings for our coverage of credit card products.