Tax tips for military services members

It’s that dreaded time of the year again — tax time! For those military service members, there are some distinct tax advantages for you that may result in a windfall:

First-Time Homebuyer Credit.  For service members serving overseas for at least 90 days between January 1, 2009 through May 1, 2010, you are entitle to an extension of the $8,000 First-Time Homebuyer Credit, if you enter into a contract prior to April 1, 2011 and settle by June 30, 2011.  Even if you settle in 2011, you are entitled to claim the credit on your 2010 Federal tax returns.  

Military Spouse Residency Relief Act.  Under the Act, military spouses who maintain their state residency in one state (for example, Florida), but move to another state due to PCS orders of their military spouse (for example, Virginia), can claim an exemption from having to pay state income tax in Virginia.  Some states like Virginia however, do require proof that the non-military spouse’s domicile is in another state.  Therefore, it may be necessary to file an additional tax form in the non-domicile state.  Please seek legal and tax advice, if you have any questions.

Combat Zone Tax Exclusion.  For any day that a service member serves in a designated combat zone, the member’s entire month of pay is excluded from their gross income for tax purposes.  There is no limit to the exclusion for enlisted member or warrant officers.  For officers, however, the exclusion is limited to the highest rate of enlisted pay (currently capped at $7,714.80) plus hostile fire or imminent danger pay they may be entitled to receive. 

The current list of combat zones include, as of the date listed:

• Arabian Peninsula Areas (the Persian Gulf, Red Sea, Gulf of Oman, Arabian Sea north of 10° North latitude and west of 68° East longitude, Gulf of Aden, Bahrain, Iraq, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates), as of January 17, 1991

• Kosovo area (Federal Republic of Yugoslavia – Serbia and Montenegro, Albania, Adriatic Sea, Ionian Sea north of the 39th Parallel), as of March 24, 1999

• Afghanistan, as of September 19, 2001

• Bosnia and Herzegovina, Croatia and Macedonia, as of November 21, 1995

In Support of Operation Enduring Freedom (Afghanistan):

• Pakistan, Tajikistan and Jordan, as of September 19, 2001

• Incirlik Air Base (Turkey), as of September 21, 2001 through December 31, 2005

• Kyrgyzstan and Uzbekistan, as of October 1, 2001

• Philippines (only service members with orders referencing Operation Enduring Freedom), as of January 9, 2002

• Yemen, as of April 10, 2002

• Djibouti, as of July 1, 2002

• Israel, as of January 1 through July 31, 2003

• Somalia, as of January 1, 2004

In Support of Operation Iraqi Freedom:

• Turkey, as of January 1, 2003 through December 31, 2005

• The Mediterranean Sea east of 30° East longitude, as of March 19 through July 31, 2003

• Jordan, as of March 19, 2003

• Egypt, as of March 19 through April 20, 2003

Filing Deadline. The national tax filing date has been moved from April 15, 2011 to April 18, 2011 due to the observance of Emancipation Day.  Also note if you are a military service member, you may qualify for an additional 180-day filing and payment extension upon return from a combat zone, hazardous duty area or from other overseas deployments.

Free Tax-Preparation Services. Most service members can visit almost any installation around the world for free, in-person tax preparation services through the Volunteer Income Tax Assistance program, offered by the Armed Forces Tax Council. The Department of Defense is also providing free online federal tax filing through H&R Block and Military OneSource. You can access the site at http://www.militaryonesource.com and then click on “Tax Filing Services.”