Perks for Military Personnel

Servicemembers can get extra relief.

From Kiplinger's Personal Finance magazine, March 2009

Uncle Sam wants to make taxes for members of the military as painless as possible. For example, pay for active service is exempt from income tax for any month in which you serve in a combat zone -- up to the highest rate of enlisted pay ($7,100 per month in 2008). However, you can elect to have combat pay counted as earned income for purposes of figuring the Earned Income Tax Credit and the Child Credit, worth up to $1,000 for each dependent child under age 17.

Recent changes have made the tax code even friendlier toward the armed forces. "The theme behind much of the tax legislation pertaining to the military in recent years has been to fix situations in which older tax laws unwittingly had created penalties for people in service to their country," says Mark Luscombe, principal federal tax analyst for CCH, a leading provider of tax information and services.

So now you can count combat pay as earned income for the purpose of making contributions to traditional and Roth IRAs. Plus, if you were unable to make an IRA contribution in 2004 and 2005 (because combat pay was not considered earned income in those years), you have until May 29, 2009, to make up those contributions. You have one year from the date on which you make the catch-up contribution to amend your tax return in order to receive a refund or credit against current taxes.

Extra time to file. Members of the military serving outside the U.S. or Puerto Rico (but who are not in a combat zone) have until June 15 to file their tax returns; interest will accrue, however, from the normal April 15 due date. If you are serving in a designated combat zone, are deployed in a "contingency operation" or are hospitalized outside the U.S. because of an injury received while serving in a combat zone or in a contingency operation, the due date of the tax return is postponed for the period of combat service or hospitalization, plus 180 days. And you won't owe interest or penalties.

Breaks for reservists. Members of the Reserve and the National Guard can take a deduction for travel expenses for overnight service trips more than 100 miles away from home. The deduction, which is available whether or not you itemize deductions on your tax return, is limited to the federal per-diem rate, which varies by locality.

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