It’s that time of year again – tax time! As tax forms and other tax documents begin arriving in your mailbox, now is the perfect time to catch up on the tax-law changes affecting you and your military family.
There are several tax laws pertaining to military members for the 2012 tax year that you may want to take advantage of on your return. Here are some things to keep in mind:
1. Combat pay doesn’t count as income, and it is not taxable. However, even though you don’t have to include combat pay as taxable income, it may provide a benefit when you figure your earned income tax credit, which can reduce the amount of taxes you owe. If you are an enlisted service member, warrant officer, or commissioned warrant officer, you can also exclude items such as re-enlistment bonuses, pay for accrued leave, and student loan repayments. Service members also aren’t required to declare military loans and other short-term financial instruments as income.
2. Pay no penalty on retirement plan withdrawals. If you are an active-duty service member, you may be able to take early withdrawals from IRA and 401(k) accounts without penalty. To qualify for the exemption, you must have been called to active duty after Sept. 11, 2011, for more than 179 days, and you must take the withdrawal while on active duty.
3. Filing deadlines are extended for those serving in combat zones. Members of the military serving in combat zones get an automatic 1,800-day extension to file and pay taxes and file for refunds.
Other tax benefits for military personnel include a 6% cap on the IRS’s maximum interest rate; the ability to deduct unreimbursed travel expenses as an adjustment to income rather than an itemized deduction; a waiver of the requirement to meet certain time and distance requirements when deducting moving expenses; and no taxes on death benefits to survivors.
There are also special federal guidelines for residency for active military personnel. In most cases, the state in which a service member joined the military is considered his or her state of residency, and other states can’t tax military pay. However, if the service member or a member of his or her immediate family takes an outside job while living in another state, those earnings may be taxable in that state.
If all of these military tax rules and laws are making your head spin, there is some help available via TurboTax’s new military edition. The program is specifically designed to help members of the military and their families complete their taxes. TurboTax employees look for deductions specific to military families and assist with working through military-related tax situations, including state of residence, uniform deductions, and PCS issues.
How are you tackling your taxes this year? What’s your biggest tax dilemma? Share your thoughts with us!