Several income tax benefits and exemptions are available for military personnel and their families, designed to reduce some of the financial burdens placed on service members or their families, among other forms of assistance. The most important aspects of such benefits include payments due to survivors, home ownership, travel expenses, and tax extension—all benefits that can be availed of by military personnel and their families.
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Death Benefits and Homeownership Support
Death Gratuity for Survivors
At present, it stands to be John’s non-taxable payment of $100,000 to all survivors of deceased members of the Armed Forces. Death benefits are available on deaths that occur after September 10, 2001. This legislation is seen as a much-needed lifeline at a critical juncture in time.
Sale of Principal Residence
Military personnel who undergo qualifying extended duty can extend the normal 5-year period of ownership and use it as a principal residence for an additional period of up to 10 years. During this time, members or their spouses may be located more than 50 miles from the primary residence or living in government quarters under orders, and they will still qualify for the home sale exclusions. However, this applies only to one property at a time.
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Homeowners Assistance Program (HAP)
Financial assistance from HAP of the Department of Defense regarding the military member with the most common term is, but not limited to, those whose property values have declined due to the closure or realignment of military bases. HAP money is excluded from taxable income as well as from calculating Social Security and Medicare taxes. Recently, the HAP eligibility has been broadened to include:
- Armed Forces members with 30% or greater disability incurred during deployment after September 11, 2001.
- Wounded DoD and Coast Guard civilian homeowners reassigned for medical treatment or retirement due to a service-related disability during deployment after September 11, 2001.
- Surviving spouses of fallen warriors who relocate within two years of their spouse’s death.
For now, all the applications end at wounding, injuries, and illness to soldiers and surviving spouses. They do not provide for Base Realignment and Closure (BRAC) affected personnel.
Additional tax deductions and resources
Overnight travel deductions for reservists
Members of the National Guard and Reserve who are required to travel more than 100 miles from their homes to attend drills or meetings can claim the deduction for their unreimbursed travel expenses related to the service. This travel expense deduction includes transportation costs, lodging, and meals that must be declared as an above-the-line adjustment to gross income on Form 1040, line 24, and calculated using Form 2106. To qualify, however, the deduction must conform to the rates and amounts specified for federal employees.
Combat zone extensions
As a general rule, military personnel who are deployed in combat zones or designated contingency operations outside the borders of the United States receive automatic extensions in the filing of returns or payments of taxes. This extension recognizes the difficulty of service in hazardous areas and provides additional time to attend to financial matters.
Tax breaks for military academy attendees
Attendees of military colleges in the US, such as the US Naval Academy, US Air Force Academy, US Coast Guard Academy, and US Merchant Marine Academy, do not incur a 10% tax penalty in case of nonqualified withdrawals from qualified tuition programs or Coverdell Education Savings Accounts. These withdrawals, which must be within the limits of advanced tuition costs, provide a handy resource to students and their families attending these national service academies.
Resources for military spouse business owners
Members of the National Guard and Reserve who are required to travel more than 100 miles from their homes to attend drills or meetings can claim the deduction for their unreimbursed travel expenses related to the service. This travel expense deduction includes transportation costs, lodging, and meals that must be declared as an above-the-line adjustment to gross income on Form 1040, line 24, and calculated using Form 2106. To qualify, however, the deduction must conform to the rates and amounts specified for federal employees.
