Questions about military taxes

by | Mar 23, 2016 | Save Money | 0 comments

The military has some unique tax situations, and things can get even more complicated during deployments. If you know your options, you can save a lot of money. So here are some of the basics to help you prepare your taxes:

1. If he is deployed, you don’t have to file taxes now. Deployed persons (and their spouse, if they file jointly) are granted an automatic tax extension. So you don’t need to worry about the usual April 15th deadline. You have until 1 month after he returns to file them. This is especially useful if you OWE taxes this year. You can save money during the deployment, then make your tax payment later. However, if you are getting a refund this year, then the sooner you file, the sooner you can get that check. If you save and invest it during the deployment, you will have more cash to enjoy together when he comes back.

2. Income from combat deployments is tax-free. This will be indicated on his W-2, so you don’t need to do anything extra. It just means you are more likely to get a nice refund the year after a combat deployment, because the government does not tax income earned during those months. So I think after one of his deployments, his W-2 showed that he was supporting a family of 5 on $20,000! This will help you qualify for extra deductions like the child tax credit and the Earned Income Credit, too.

3. The service member pays state taxes in their home of record, not the location of their duty station. No matter where they ate stationed, military personnel only pay taxes to their home of record. This is usually the state they were in when they joined the military. So if your husband is from Alabama, but was stationed in North Carolina and California this year, he should only pay tax to Alabama¬† (unless he had another job on the side in one of those states). The military W-2 will indicate which state was withholding taxes from him. And some states don’t even tax military income, so if you are registered with one of those, he may not have to pay at all!

4. The spouse can choose which state to file with, even on a joint return. A new tax law passed a few years ago gives military spouses the ability to choose which state they pay taxes to. If you are from Virginia, but moved to Texas because of your husband’s military orders, then the money you earned from working near his duty station can be paid EITHER to Texas, or to Virginia. Of course, you want to choose the state with the better tax rate. You will complete a non-resident form for whichever state you don’t pay, so they know that the money you earned is being paid to another state. Read more about your state’s military tax laws here.

5. You can prepare your taxes yourself. If the only tax documents you have are his W-2 and your W-2, then you can file jointly and fill out the 1-page E-Z form. This is quick and straightforward, and you won’t need to pay for anyone to help you.

6. Free tax help is available on base. Most bases offer a VITA (Volunteer Income Tax Assistants) center, where you can make an appointment and get free help with filling out your forms and deciding how and where to file. The staff members are not tax professionals. Instead, they are volunteers who have taken classes on tax preparation, and are donating their time to help you. Important note: if your taxes are ‘complicated’ because you own a rental property or have many investments, then they may not be able to assist you because that is outside the scope of their classes. But if you have some general questions or just want to go through it with someone, VITA is a good source. More details about VITA, including locations, can be found here.

7. What tax documents do I need? To file taxes in any of the ways mentioned above, you will need to have your documents. Some of these will be mailed to you (if you have updated your current address with your bank and other financial institutions). The military W-2 will not be mailed. You or your service member can get it by logging into their government MyPay account. If either of you was a student and paid tuition for college clasees, then contact your program to get a copy of your student tax form. You should have a tax document for every source of income: your job, your bank account, any property you own or rent to others, royalty sales if you wrote a book, etc. You will also have documents for student tuition, or if you pay a mortgage. These are not income, but will be used to calculate your refund. The fewer documents you have, the quicker and cheaper it will be to file.

8. If you need professional help, Turbo Tax is cheaper than H&R Block. Turbo Tax offers discounts to the military, and lets you call real people if you have a question. The program asks you questions and has your enter data from your tax documents, but it does all the calculations for you, which is convenient. Plus, Turbo Tax guarantees your best refund, and offers audit protection¬† (as an additional fee), so you don’t have to worry about making a mistake. H&R Block will charge you for each firm they have to fill out, so if your taxes are even a little complicated, it will get expensive quickly.

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So now that you know your options, I hope you have the confidence to prepare your taxes yourself during a deployment. Do you have any other questions about military taxes?

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