Military Family Tax Relief Act Overview

If you are currently serving in the military, you should take a moment and educate yourself about the Military Family Tax Relief Act. Whether you owe back taxes to the IRS, or you are in good financial shape, you should know how the law affects you.

Military Family Tax Relief Act Summary

Very quickly, I am going to summarize a few things you should know about the program. I will then explain further about them.

  • The Military Family Tax Relief Act was signed into legislation in November 2003 by President Bush.
  • If you own a home, you can suspend (up to 10 years) the running of the five year ownership and use the period before the sale of a residence.
  • If you are in the Army Reserves or Army National Guard and travel more than 100 miles to your unit, you may deduct non-reimbursed travel expenses to include transportation, meals and lodging. Make sure you keep records of these expenses so you can input this information on Form 1040 when you do your income taxes.
  • Payments made after Nov. 11, 2003, under this program to offset the adverse effects on housing values of military base realignments or closures will be excluded from income as a fringe benefit.
  • If you served in a combat zone or in a contingency operation, as designated by the SEC DEF, you will be eligible for certain tax filing extensions. Talk with a tax professional to find out how this works.
  • It clarifies that dependent care assistance programs for military personnel are excluded benefits. Effective for tax years after 2002.
  • The ten percent tax on payments from a Qualified Tuition Program or Coverdell Education Savings Account that are not used for educational expenses does not apply to attendees of the U.S. Military, Naval, Air Force, Coast Guard or Merchant Marine Academies, to the extent the payments do not exceed the costs of advanced education. Effective for tax years after 2002.

The Selling Of Your Principle Residence

When a service member’s duty station is at least 50 miles from their residence, or while the personnel is residing under orders in government housing, this benefit can be used. It is good only for a period of more than 90 days or for an indefinite period.

You see, a taxpayer on qualified official extended duty in the U.S. Armed Services or the Foreign Service may suspend for up to 10 years of that duty time the running of the 5 year ownership and use period before the sale of a residence.

This tax benefit only applies to one property at a time.

You have 3 years to file amended returns. Taxpayers amending a return to use this provision should put “Military Family Tax Relief Act” in red in the top margin of Form 1040X.

For National Guard And Reserve Travel

National Guard and Reserve personnel who stay overnight more than 100 miles away from home for a drill or meeting may deduct un-reimbursed travel expenses (transportation, meals and lodging) as an above the line deduction.

The deduction is limited to the rates for such expenses authorized for federal employees.

Taxpayers use Form 2106 or 2106-EZ to figure the deduction amount and enter it as an adjustment to income on Form 1040, line 24.

Base Closures Or Realignments Homeowner Assistance

Payments made after Nov. 11, 2003, under this program will offset the adverse effects on housing values of military base realignments or closures will be excluded from income as a fringe benefit.

Combat Zone Extensions

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The various extensions granted to combat zone participants to file returns or pay taxes will also apply to those serving in Contingency Operations, as designated by the Secretary of Defense. These are effective for any acts whose deadline has not expired before Nov. 11, 2003.

It is wise to talk with a tax professional to find out how this works.

Dependent Care

Another great benefit under the Military Family Tax Relief Act is the fact that dependent care assistance programs for military personnel are excludable benefits. These are effective for tax years after 2002.

For Attendees Of The Military Academy

The ten percent tax on payments from a Qualified Tuition Program or Coverdell Education Savings Account that are not used for educational expenses does not apply to attendees of the U.S. Military, Naval, Air Force, Coast Guard or Merchant Marine Academies, to the extent the payments do not exceed the costs of advanced education. These are also effective after 2002.

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You need to learn all you can about tax benefits

Many service members are paying much more in taxes than they need to. It is important that you learn all you can about tax deductions available to you.

But, keep in mind that I am not a CPA or tax professional, so it is wise that you do consult with one.

Keep in mind that the Military Family Tax Relief Act is just a portion of the tax benefits you can get as a military member.

Let’s look at some of the many tax breaks military members or their families may have:

  • If you serve in a combat zone as an enlisted service member or as a warrant officer for any part of a month, all your income for that month is exempt from federal taxes. For officers, the monthly exclusion is capped at the highest rate of enlisted pay, plus any hostile fire or imminent danger pay received.
  • Members of the military serving in combat zones get an automatic 180-day extension from the IRS for filing tax returns, paying taxes and filing refund claims. This exception does not apply to Social Security and Medicare taxes.
  • You and your spouse may qualify for a deadline extension of at least 180 days after you’ve returned from a combat zone.
  • As a member of the military, you cannot be charged more than 6 percent a year on any money you may have owed the IRS before you entered military service.
  • If your move is a required permanent change of station, the IRS allows you to deduct the “reasonable un-reimbursed expenses” of relocating yourself and your family.
  • Survivors of armed forces members who die while on active duty receive a $100,000 tax-free death “gratuity” from the government.
  • If you’re transitioning back to civilian life, you may be able to deduct some of the costs you incur while looking for a new job.
  • Members of the armed forces who die while on duty in a combat zone or in support of a combat operation are forgiven any tax liability they may owe the IRS.

Final Thoughts

Once again, this is just a brief summary of the Military Family Tax Relief Act. I have not covered EVERYTHING in the Act, nor am I a licensed attorney or CPA. If you have a specific question, make sure you talk to a qualified individual.

What are your thoughts? What do you know about this piece of legislation? Leave a comment below to let me know what you think. I look forward to hearing from you.

References

  1. http://www.military.com/money/personal-finance/taxes/special-tax-breaks-for-military-members.html
  2. https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Deductions-and-Credits/Serving-Uncle-Sam–Tax-Breaks-for-the-Military/INF13529.html
  3. https://www.irs.gov/individuals/military/highlights-military-family-tax-relief-act
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7 thoughts on “Military Family Tax Relief Act Overview”

  1. Thank you for sharing this information, This is a perfect information to know. I must make such to remember them. I’m going to keep all the receipt and good records as posted above, for tax time..

  2. The Military Family Tax Relief Act is certainly something every military member should take the time to learn more about. The act is quite detailed, and has a whole host of provisions that benefit just about any military member to some degree. It even provides for compensation for a loss through a home sale due to reassignment or base closure. There are some good websites available for guidance. Keep all receipts and good records, as discussed above, for tax time. I use Turbo Tax myself, Chuck, and it is very thorough and easy to work with, especially for someone, like me, who cringes at the thought of doing taxes.

  3. Another great tax benefit that I’ve used twice now is the fact that the Combat Zone Tax Exclusion makes most service members eligible for the Earned Income Tax Credit (EITC) for the tax year they deploy. (It’s a matter of what your income is like, and if your deployment straddles two years, it may not work out. I was lucky in twice serving almost an entire calendar year in a combat zone.) This means additional money (up to a few thousand dollars) in your refund over and above any federal income tax you paid. The EITC rules change from year to year, and your eligibility depends on your exact tax situation, including how many dependents you have, what specific deductions you take, and whether your spouse has a significant amount of income, not to mention your military pay (field grade officers may be out of luck). But when you file taxes for a year you were deployed, make sure you check to see whether you’re eligible for EITC–you’ve earned it.

    1. Great point. The EITC is a huge tax credit. If you can legally qualify for it, you should use it. If you aren’t good at doing your taxes yourself, it might be in your best interest to sit down with a qualified tax professional. The money you spend will be money well invested.

      Chuck Holmes

  4. Good information to know. I will definitely remember them, particularly because my unit is 100+ miles away in Pennsylvania. Will definitely be keeping my receipts. Thanks, Chuck!

    1. Justin,

      I’d buy a mileage log at Office Depot or Office Max and record your mileage to and from drill weekend. If you get stuck at a hotel during drill weekend and aren’t reimbursed by your unit or the Army, keep a receipt for your records. If you do your own taxes, programs such as Turbo Tax ask you all the right questions so you can input it yourself. If you use a CPA or tax service like Jackson Hewitt or H&R Block, make sure you bring it up with them so then can add it to your Form 1040.

      Thanks for the comment.

      Chuck

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