Breaks for the Military

Posted: Monday, January 26, 2004

WASHINGTON (AP) Soldiers in combat live in exceptional circumstances, and the Internal Revenue Service recognizes that at tax time with extended deadlines and special tax breaks.

Lawmakers acted this fall to expand those benefits, doubling a death gratuity paid to a soldier's family and making the payment entirely tax-free. The new law eased the tax rules on house sales for soldiers deployed away from home.

Reservists also can for the first time deduct travel expenses related to service. The reservist must travel more than 100 miles from home and stay overnight for the travel to qualify for the deduction. Reservists can take the deduction whether they itemize or use the standard deduction.

The IRS added a special section to its Web site to explain the benefits and services available to those serving in combat zones. Taxpayers can visit and click on ''Armed Forces Tax Benefits'' on the home page for detailed information.

Among the benefits afforded to soldiers, those in combat zones receive their pay, including any hostile fire or imminent danger pay, free from taxation. That benefit also goes to soldiers who fly missions over land areas designated as combat zones. The amount of pay excluded from taxable income for officers is limited to the highest pay available for enlisted soldiers.

The tax benefit counts for any month in which the soldier served in combat, and it can be claimed by two married individuals if both served in designated zones. Soldiers in three designated combat zones the Arabian peninsula, Afghanistan and Kosovo can currently qualify for tax-free pay.

The Defense Department ruled that soldiers serving in regions that support combat also can qualify for the tax benefits. Those regions include Pakistan, Jordan, Turkey, Philippines, Yemen, Israel and other countries, subject to certain time limitations. Not all soldiers working to support combat qualify for tax-free pay.

Soldiers in combat may file their tax returns later than the annual April 15 due date. They have until 180 days after returning from combat to file without incurring penalties or interest. Military personnel can also suspend audits and collection matters until 180 days after returning from combat. Soldiers, their spouses or tax advisers should use a special e-mail address, combatzone(at), to notify the IRS they have entered a combat zone.

Many of the benefits the military grants to armed forces are tax free, whether or not the soldier serves in combat. Those benefits include housing allowances, children's educational benefits, moving and storage expenses, legal aid and disability payments.

The IRS also advises soldiers to determine whether they qualify for the earned income credit or child tax credit.

To claim some of the newest benefits, some soldiers or their families must file amended tax returns.

Soldiers who sold a house after May 6, 1997, and paid capital gains because they didn't live in the home long enough to qualify for an exclusion might be able to recoup some of the taxes paid. Those taxpayers should check the new criteria before applying for a refund.

Families who lost a soldier since the Sept. 11 terrorist attacks may be eligible a refund for taxes paid. Congress recently doubled the previous $6,000 benefit to $12,000 and made the whole sum tax-free. Families who received a $6,000 benefit from 2001 through 2003 paid taxes on $3,000 and must file an amended return to claim a refund.

On the Web:

Tax Information for Members of the U.S. Armed Forces -,,id97273,00.html

Publication 3 Armed Forces' Tax Guide -

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