Memorial Day isn't just the kickoff to summer. It's also a special day to honor men and women who've lost their lives serving in the U.S. military. In fact, the entire month of May is Military Appreciation Month, dedicated to the many who have served and are currently in our nation's Armed Forces.
Having been in the military myself, I thought now's a great time to recognize our soldiers' special contributions by highlighting a few benefits the IRS bestows on military members in its Armed Forces' Tax Guide, known as Publication 3. Here are some of the unique provisions aimed at helping those who protect our country.
First, tax filing day was April 18 for most civilians. But those serving in the military in a foreign country have until June 15 to file their federal income tax returns. And those serving in a combat zone have even longer to file, typically 180 days after the date they leave the hazardous area.
Active-duty members of the Armed Forces receive many types of pay, including basic pay, special pay, combat zone or hazardous duty pay, along with allowances for living, moving and travel. Some of these are included in their taxable income, but other types of pay are excluded from gross income and therefore aren't taxed.
Here are a few the types of pay that are excluded from taxable income:
Combat zone pay: Pay received while actively serving in a designated combat zone or hazardous duty area is fully excluded for enlistees, and a limited amount is tax-free for officers. One point here is that while this pay is exempt from taxable income, it does count toward figuring the income limits for contributions and deductions for IRAs.
Family allowances: Specific allowances paid for educational expenses of dependents, evacuation and separation costs are also tax-free.
Living allowances: Basic Allowance for Housing, or BAH, is tax-free. And even if you use your BAH to pay for a house that you own, you can still take a deduction for mortgage interest and real estate taxes. Pay received for Basic Allowance for Subsistence (BAS) and Overseas Housing Allowance (OHA) is also tax-free.
Death allowances: Amounts received for burial services, payments to survivors and travel of dependents to a burial site are excluded from taxable income.
Moving allowances: Reimbursement allowances for moving related to being dislocated, base reassignment, temporary lodging and the expenses related to moving and storage of personal and household affects are exempt from taxable income.
In addition, several unique tax deductions are available to members of the military, including these:
Duty-related travel expenses: Members of the armed forces reserves who incur expenses to travel to reserve-related duties more than 100 miles from home can deduct their unreimbursed travel expenses. You can claim this on Form 2106, or Form 2106-EZ, even if you don't itemize deductions.
Moving expenses: Unreimbursed expenses that exceed moving allowances may be deductible for those on active duty. If the move is because of a permanent change of station and the expenses are unreimbursed, use Form 3903 to figure the amounts that can be claimed as a deduction.
Uniform expenses: When regulations prohibit you from wearing uniforms off-duty, the costs of these items can be deductible. Example of this include dress and utility uniforms that you can't wear off-duty and articles such as insignia of rank, epaulets and swords.
Finally, if a member of the Armed Forces is killed while on active duty in a combat zone, or dies from wounds received during a military or terrorist action, tax liability in the year of death or even in prior years (during the period of active-duty combat service) can be forgiven and never have to be repaid.
Survivors filing a return for a deceased service member should write the name of the military action and KIA, such as "Desert Storm - KIA" or "KITA" (for "killed in a terrorist action"), in bold letters at the top of the tax return. The IRS will determine the amount of the tax to be forgiven, or if already paid, to be refunded.
On behalf of all grateful Americans, thank you for your service.