Military Tax Credits

Updated: December 28, 2023
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    Military members and their families are often tasked with giving a lot to Uncle Sam, be that personal sacrifice or financial. When it comes to taxes, several tax breaks are available to military members to help offset some of the financial burden.

    Make sure you’re taking full advantage of these tax credits available to you and your family.

    Combat Pay

    Service members serving in a combat zone are eligible to have their combat pay partially or fully tax-free. Military serving in support of a combat zone may also qualify for this exemption.

    Keep in mind, some members choose to include combat pay as part of taxable income. Including it may raise your earned income tax credit (EITC), which could mean you owe less taxes and receive a larger refund. The IRS recommends figuring it out both ways to choose the best option for your household.

    Additionally, military members serving in a combat zone receive an automatic 180-day extension from the IRS for filing returns, paying taxes and filing refund claims.

    Joint Returns

    Typically, both spouses must sign a joint income tax return. If your military spouse is not able to sign due to certain military duty or conditions, spouses can file for power of attorney to file a joint return without both signatures.

    Moving Expenses

    Most taxpayers can circumvent paying capital gains taxes on the sale of their homes if they owned them and used them as their qualifying principal residences for two out of five years before the sale. Military members can suspend the five-year test period for up to 10 years while they’re on extended duty (assigned to a duty station that’s at least 50 miles from the house for more than 90 days). This means they can exclude up to $250,000 in gains for individuals or $500,000 for married couples on the sale of a home.

    When moving due to a permanent change of station, service members may be able to deduct some of their unreimbursed moving costs using the IRS Form 3903.

    Uniform Deductions

    Members of the military can deduct the cost of uniforms if they’re prohibited from wearing them while off duty – including the cost of purchase and upkeep. You must reduce your deduction by any allowance received for the cost of the uniform.

    Transitioning to Civilian Life

    Service members transitioning to civilian life get some relief with job search expenses. Deductions include the cost of travel, resume preparation fees and job placement agency fees. Moving expenses may also qualify.

    Tax Breaks for Reservists

    Reservists can deduct unreimbursed travel expenses when their military duties take them more than 100 miles from home. When a call to active duty causes a financial hardship resulting in the need to withdraw from an IRS, 401(k) or  other retirement plans, the IRS may waive the 10% penalty normally applied to withdrawals. But withdrawals will still count as income and be subject to taxation.

    ROTC Allowances

    Some allowances paid to Reserve Officers’ Training Corps students in advanced training may be tax-exempt. This applies to allowances for education and subsistence. Active-duty ROTC pay is still taxable.

    Military Spouse Tax Relief

    The Military Spouse Residency Relief Act exempts military spouses from having to pay state taxes simply because their spouse is stationed there. Military members and their families are required to pay taxes only in the state they’ve set up legal residence.

    Free Tax Help

    Most military bases offer free tax-preparation services and consulting through the Volunteer Income Tax Assistance program. These IRS-certified volunteers understand military-specific tax issues and guidelines. Learn more and find a VITA near you here.

    Learn more about military tax credits by downloading the IRS Publication 3, Armed Forces’ Tax Guide.

    Written by Team