WASHINGTON, March 22, 2011 -- Servicemembers and their families have a few tax advantages at their disposal, as well as a few extra days in which to complete their taxes this year, a Defense Department tax expert said.
Due to Emancipation Day, a holiday recognized by the District of Columbia, government officials have pushed the nation's tax filing deadline from April 15 to April 18, Lt. Col. Evan Stone, director of the Armed Forces Tax Council, told American Forces Press Service.
Along with the filing extension, Stone pointed out several new and existing tax laws military members and their spouses should keep in mind as the deadline draws near.
To start, people may have noticed an increase in their take-home pay, Stone said. The government, he explained, reduced the Social Security tax from 6.2 percent of wages to 4.2 percent solely for the 2011 tax year.
"For example, a specialist with over two years of service would probably see about a $40 increase per month in his pay," Stone said. But while take-home pay is on the rise, tax brackets won't change. Congress extended the 2010 tax brackets through 2011 and 2012, he said.
Other tax laws are specific to military members and their spouses, Stone said, citing the Combat Zone Tax Exclusion as an example. Under this exclusion, for any day a member spends in a combat zone, that entire month's worth of base pay is excluded from gross income for income tax purposes, he explained.
There's no limit to this exclusion for enlisted members and warrant officers, he noted; however, officers are limited to $7,714.80.
"Anything above that would be included in the member's gross income," he said.
Deployed servicemembers and their spouses also have at least a 180-day extension to file or pay taxes from the date they leave the combat zone, Stone said. To invoke this extension, people should write "combat zone" across the top of their return.
Servicemembers on duty outside of the United States also are entitled to an automatic two-month extension, pushing the deadline to June 18. However, unlike with the Combat Zone Tax Exclusion, while they gain an extension to file and pay taxes, the interest on any taxes owed still will accrue from April 18 until taxes are paid, Stone said.
A significant tax break involves military allowances, he said. Under competitive compensation, housing and food allowances are nontaxable for income tax purposes, reducing taxable income at the end of the year and creating a savings of about $2,000 to $7,000, depending on salary, he explained.
"This can be significant, with tens of thousands of dollars that aren't taxable," he said.
Turning to state income taxes, Stone noted they can be complicated for servicemembers and their families, who move with greater frequency than many of their civilian counterparts. The Service Members' Civil Relief Act has long granted servicemembers the ability to retain their state of domicile for state tax purposes rather than the state where they are stationed.
For example, a servicemember may be stationed in Virginia, but owns a home, pays property taxes and votes in Ohio. That member is entitled to claim Ohio has the state of domicile and not file state income taxes for military wages in Virginia.
The government amended this same law in 2009 through the Military Spouses Residency Relief Act. In the past, a military spouse who moved to a new state and established a new residence there typically would claim that state as the state of domicile and pay state income taxes there, Stone explained.
Now, spouses who move to a new state, reside there solely to live with their servicemember and are there pursuant to military orders won't gain or lose a state of domicile for state income tax purposes. Some states, he added, also may require the spouse to have the same domicile as the service member to be eligible.
However, the law is complicated, Stone said, and each state may apply different guidance on the application of the relief act. He suggested spouses discuss their situation with a tax advisor to avoid being double taxed.
To help with this tax law and others, servicemembers and their spouses have a host of free, expert tax-preparation services at their disposal, Stone said, from on-base centers to online software.
People can visit most any installation around the world for free, in-person tax-preparation assistance through the Volunteer Income Tax Assistance program, Stone said. The Armed Forces Tax Council oversees this program, which is managed locally by installation legal assistance offices and supervised by their respective service, he added.
Volunteer tax preparers are a mix of military members and civilians with tax experience or just a desire to help, Stone said. All volunteers are trained and certified by the Internal Revenue Service before they're able to prepare taxes.
"It's a very popular program," he said. Last year, "we electronically filed over 250,000 returns."
People can locate their closest military legal assistance office through the Armed Forces Legal Assistance Legal Services Locator at http://legalassistance.law.af.mil/content/locator.php.
Servicemembers and their families also can take advantage of free, online electronic tax filing services through Military OneSource. The customized program offers free federal filing and free filing for up to three states.
People can access the H&R Block at Home program by going to Military OneSource at http://www.militaryonesource.com/ and clicking on "Tax Filing Services." For free tax-related phone consultations, people can call the Military OneSource Tax Hotline at 1-800-730-3802 seven days a week from 7 a.m. to 11 p.m. EST.
The online program is open to active-duty Army, Navy, Marine and Air Force personnel; Guard and Reserve servicemembers regardless of activation status; as well as spouses, dependent children and family members standing in for a deployed servicemember.
Whether filing in person or online, Stone suggested people take advantage of the free advice offered at military tax centers.
"Even the simplest return may have issues or deductions or credits that a person might not be aware of," he said.
To ease the process, Stone suggested people gather Social Security cards, wage and earning statements, interest and dividend statements, last year's returns if available, bank account and routing numbers for direct deposit, and other relevant information prior to a tax appointment. He also stressed the importance of attention to detail, noting that a common error is for people to enter the wrong Social Security numbers on IRS forms.
For more on military-related tax laws, people should visit the Military OneSource website or the IRS website, which features a section for servicemembers and their families.