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Military Tax Deductions

  • Standard deductions: Single $12,400 – Married Filing Jointly $24,800
  • Foreign Earned Income Exclusion, Form 2555: Most used exclusion for expats: $108,700 (2021). Only from earned income. You must live in another country.
  • Foreign Tax Credit: Allows you to deduct the amount of Foreign Taxes paid from the U.S. Tax liability. If paid foreign taxes at higher rate, you can carry forward the excess paid for use in the subsequent 10 years.
  • Child Tax Credit, for dependents. In 2021 you will receive a refund of $3,600 per child for children younger than 6 and $3,000 per child if younger than 17.
  • Stimulus Checks: In 2020 you could claim the Economic Impact Payments if you had not received them during the year, up to $1,200 + $600. In 2021, the EIP3 will be $1,400, if you have not received it.
  • Combat Pay received in combat zones is exempt from federal tax. U.S. Armed Forces Members who serve in combat zones may exclude “combat pay,” from their income. The IRS allows those who are enlisted members, warrant officers and commissioned warrant officers to exclude various forms of pay from their income tax return, including:
  • Active duty pay earned while serving in a combat zone.
  • Imminent danger hostile fire pay.
  • Accrued leave pay earned while serving in a combat zone.
  • Pay earned while hospitalized from service in a combat zone.
  • Re-enlistment bonuses for voluntary re-enlistment during a month while serving in a combat zone.

Commissioned officers can also exclude part of their combat pay. However, their exclusion is capped at the highest rate of enlisted pay – plus any extra pay received for imminent danger or hostile fire.

  • Earned Income Tax Credit: Military members can elect to use non-taxable pay to qualify for EITC credits.
  • Waived Penalties: Military members called to active duty, causing financial hardship, may waive the 10% tax penalty for early withdrawal from an IRA or other retirement account.
  • Uniform Deductions: National Guard and Reserve members may qualify to deduct the cost and maintenance of uniforms if they are not allowed to wear those specific uniforms when off duty.
  • Additional Deductions: Reasonable required PCS unreimbursed moving expenses, Job Search Expenses for transitioning to civilian life, National Guard unreimbursed travel expenses for traveling over 100 miles away to perform required duties, Charitable donations automatically deducted from your paycheck.
  • Moving expenses: Each military branch pays for the relocation of any military members they transfer who are not married or do not have families. If the service member is married, the government provides (the service member) with 95 percent of the cost considered standard to relocate a family to a new active-duty location. Armed forces personnel who move due to a change of duty location can deduct what the government considers “reasonable unreimbursed moving expenses” for relocating themselves and their families.
  • ROTC Student Training. Students participating in advanced training who receive subsistence allowances are NOT taxed for that allowance. However, active-duty payment for events like advanced summer training camp are taxable.
  • Active reservists who travel 100 or more miles from home for reserve duty may deduct the standard mileage rate for unreimbursed travel expenses and deduct lodging and half the cost of their meals from traveling 100 or more miles for duty.
  • Uniform Cleaning and Upkeep: Each military branch issues uniforms to their members along with a monthly clothing allowance for upkeep. Expenses exceeding this allowance may be deducted as unreimbursed employee expenses subject to 2% of their adjusted gross income on itemized deductions.
  • Military Retirement Life Transitions: A civilian life transition program is offered to military service members which helps them prepare for life after the military service. Costs incurred in this transition program, such as job-hunting expenses for transitioning between military service and civilian life, may be deducted. These deductible expenses include job search travel costs, résumé preparation and job placement fees.