Armed Forces Tax Guide (IRS Publication 3): Official Tax References for Military Pay and Benefits

Military members should know about the free tax-filing assistance programs available. The programs range from free access to tax software to working with volunteers who help prepare tax returns. Many bases offer the programs to retirees.

One of the best things you can do is look beyond this year’s tax return and start tax planning for next year.

For service members and their families, there are many military-specific tax benefits, guidelines and other need-to-know items. IRS Publication 3: Armed Forces Tax Guide is one of the best resources for this information.

The Armed Forces Tax Guide contains a lot of military-specific tax information. Since the Internal Revenue Service guide is the authoritative source for tax information, everything in it is legitimate.

Below are five things the Armed Forces Tax Guide clarifies:

What Compensation Is Taxable or Not Taxable

You can generalize what types of pay (basic, incentive, special, etc.) are taxable, while allowances (like basic allowance for housing, basic allowance for subsistence or clothing allowances) are not. For example, the cost-of-living adjustment (COLA) for the continental United States (48 states and the District of Columbia (CONUS), but not Alaska and Hawaii) is taxable, while COLA outside CONUS (OCONUS) is not.

Detailed Information About Tax Treatment of Combat-Zone Deployments

The Armed Forces Tax Guide is the base document by which your pay offices withhold taxes (or stop withholding based upon your combat zone tax exclusion).

However, sometimes a pay office is wrong. When they are, this document allows you to resolve this on your tax return, if needed.

For example, in 2015 I traveled to Jordan on several exercise-related TDY visits, warranting the combat-zone tax exclusion (CZTE). My pay office withheld taxes because I was not directly involved in combat operations. 

Even though my command certified my travel to Jordan, which hosts U.S. Central Command joint military exercises, as being eligible for CZTE, the pay office disagreed.

No problem. I took my travel documents to my tax preparer (an enrolled agent and tax professional). We verified the travel was to one of the U.S. Department of Defense certified CZTE countries, and the adjustments were made for my return.

Itemized Lesser-Known Military-Specific Deductions

While you generally cannot deduct upkeep of uniform items, you can deduct:

• Cost of upkeep for military battle dress uniforms and utility uniforms that you cannot wear off duty
• Articles not replacing regular clothing
• Reservist uniforms if you can only wear them while performing duties as a reservist (i.e. not while doing your civilian job)

These deductions are categorized as miscellaneous itemized

These deductions are categorized as miscellaneous itemized deductions, and only count if they exceed 2% of your adjusted gross income. For example, if your AGI is $50,000, then miscellaneous itemized deductions only count to the extent they exceed $1,000.

While IRS Publication 529 Miscellaneous Deductions contains information about deductions subject to the 2% AGI, such as tax preparation fees, IRS outlines military-specific examples, such as:

• Professional dues for professional organizations directly related to your line of work, not including the officers’ club or non-commissioned officers (NCO) club dues
• Unreimbursed education expenses
• Transportation expenses, including non-reimbursed travel for National Guard or Reserve Drill duty

One-Stop Shopping for Tax Credits

You can use the guide as a snapshot for most of the tax credits available:

• Child tax credit
• Additional child tax credit
• Earned income tax credit, a tax break for low- to moderate-income families; you can find additional information at the IRS’s earned income tax credit and other refundable credits landing page
• Credit for excess withheld Social Security tax, which you might be able to claim if you had more than one employer

Tax-Filing Deadlines and Details

While tax-filing extensions are an option, certain rules exist specifically for service members.

Whether you’re filing from CONUS, OCONUS or CZTE, varied extensions apply.

• CONUS: Anyone can receive a six-month extension by filing Form 4868
• OCONUS: Three separate extensions may apply
• CZTE: The rules can be complicated; here is more information regarding tax-deadline extensions for deployed military members

Keep in mind that if you owe money on your taxes, in most situations (not including CTZE-related extensions), the IRS charges interest from the initial due date (April 18, 2022) until the date you pay taxes.

Conclusion

While many dread doing taxes, it’s important to note the military-specific tax rules in place. If you’re familiar with them, or at least with the Armed Forces Tax Guide, you can help ensure that more of your money works for you.

About Post Author

Forrest Baumhover

Forrest Baumhover is a Certified Financial Planner™ and enrolled agent. As a retired naval officer, Forrest helps veterans, transitioning service members and their families address the financial challenges of post-military life so they can achieve financial independence and spend more time doing the things they love.

Forrest sold his stake in an investment planning firm so he could spend more time with his family and do more of the things he wants to do. He writes financial planning articles online, which you can follow at his website, Teach Me! Personal Finance.

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