There can often be many misconceptions and misinformation when it comes to the military and taxes. We wanted to cover three frequently asked questions we get and how to handle them when working on your 2020 tax return.
I am in the military, do I have to pay taxes?
Yes, you are required to pay federal income tax, Social Security, Medicare, and state income taxes on your base pay. You’ll notice we mentioned that you will pay taxes on your base pay, this means certain additional income will not be taxed, including housing allowances, family separation allowance, per diems, and bonuses. Combat pay is not included in the income tax for military personnel, which can help your Earned Income Tax Credit (EITC), reducing the final amount of taxes you owe. When filing state income tax, it’s best to check with local state tax laws as they can often differ.
What State Do I File In?
Military personnel will file taxes in the state of their permanent residence. If active duty orders disrupt your living location temporarily, you do not have to pay taxes in the state your orders are in under the Servicemembers Civil Relief Act (SCRA). You may need to prove your permanent resident to the IRS. Some documents that can help are your voter registration card, paying state income tax, maintaining a current driver’s license and registering any vehicles owned in your state of permanent residence.
If you live in one of the nine states that do not have income tax, you may pay a little less than other states. These states include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.
Am I Eligible For Tax Deductions?
You are eligible for tax deductions as a member of the military, with some being more extensive than what is offered to civilians. You can see a full list of the available deductions and tax breaks from the IRS but we wanted to highlight a few popular ones we thought would be helpful.
- Moving expenses: Any unreimbursed costs for permanent relocation. This includes reserved status personnel traveling over 100 miles from home.
- Uniform deductions: Cost of uniform and accompanying supplies that can’t be worn as a civilian.
- Education costs.
- Mortgage interest.
- Charitable donations.
- Civilian job placement fees including relocation post-military.
It’s also important to highlight that certain military personnel are eligible for filing extensions including active-duty military who serve in a combat zone. Your income may even be partially or entirely tax-free if this is the case for you.