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THEY say nothing is certain but death and taxes. For military families, not only are taxes certain, but they are certain to also be confusing! To attempt to cover all aspects of income tax filing in this article would be impossible due to the complexity of our tax code and the infinite number of individual situations for military families. We hope to clarify some of the most common issues and identify resources for finding answers to your specific questions.
The IRS has a page on its website dedicated to information for members of the U.S. Military. The IRS also has created a document called the Armed Forces’ Tax Guide, which has specific information for filing your 2012 taxes. This document is in PDF format and can easily be downloaded and saved on your computer or printed out for easy reference. (Before you print, be aware the file is 30 pages long.) According to the IRS, “For federal tax purposes, the U.S. Armed Forces includes commissioned officers, warrant officers, and enlisted personnel in all regular and reserve units under control of the Secretaries of the Defense, Army, Navy, and Air Force. The U.S. Armed Forces also includes the Coast Guard.” The answer to almost any military-related tax question is on the IRS website. To save you the time and frustration of searching, we’ve gathered answers to some of the most useful FAQs and links.
Tax lingo is just about as confusing as military lingo. What is the difference between a Tax Deduction, a Tax Credit and an Adjustment? Intuit has an online glossary of terms that will help you sort it all out.
Gross Income is the income amount on which your Federal Income Tax is figured. For most Americans, determining their Gross Income is straightforward, but not always so for military members and their families. Military Pay includes Base Salary and can also include BAH (Basic Allowance for Housing) and BAS (Basic Allowance for Subsistence), Bonus Pay and Incentive Pay. Some types of Military Pay must be listed on your Tax Return, but are excluded from your Gross Income. The IRS breaks down Military Pay into Included Items and Excluded Items. Finally, there are some military-specific situations in which you may be allowed an adjustment (reduction) to your Gross Income. You can find a list of Included Items, Excluded Items and Adjustments beginning on page 3 of the Armed Forces’ Tax Guide.
Combat Zone Income
Combat Pay is not included as part of a military member’s Gross Income if the pay was received while the military member was physically serving in a declared combat zone or was hospitalized for an injury, wound or disease sustained while serving in a combat zone. There are limitations on the amount of Combat Pay that Commissioned Officers can exclude. (See page 10 of the Armed Forces’ Tax Guide.)
Sale of Your Home
There are some military-related situations that can affect restrictions on claiming gains or losses associated with the sale of your home. You can find that information on Page 12 of the Armed Forces’ Tax Guide.
Employee Business Expenses
Travel expenses and uniform expenses are just two of the more common military-related tax deductions that fall into this category. A discussion on these, and other such expenses, begins on page 13 of the Armed Forces’ Tax Guide.
Forgiveness of Tax Liability
The IRS has policies in place that forgive (do not require payment of) taxes by a military member who dies in certain circumstances. These circumstances include deaths while on active service in a combat zone, from wounds, disease or injuries received in a combat zone and from wounds or injuries incurred in a terrorist or military action. Details on this policy can be found on page 20 of the Armed Forces’ Tax Guide.
Tax Return Filing Deadlines
For most Americans, tax returns must be filed by April 15 each year. That date changes if April 15 falls on a weekend or legal holiday. For example, in Maine and Massachusetts, Patriot’s Day falls on the third Monday every April and is a legal holiday in both states. When Patriot’s Day falls on April 15 (or on the federal deadline), residents who reside in both Maine and Massachusetts have an automatic extension to the next business day every year. (Patriot’s Day does, in fact, fall on April 15, 2013, so enjoy your extra filing day if you are affected.)
Extensions for filing are available to all citizens. Extensions, however, only apply to the filing of your Tax Return and the associated paperwork. Any taxes due must still be paid (on an estimated basis) by April 15. The request for an extension must be made by completing IRS Form 4868. However, military members serving outside of the U.S. are eligible for a two-month extension without the need to file Form 4868. In addition, military members can also be granted a deferment on the actual payment of their taxes in certain situations. See page 22 of the Armed Forces’ Tax Guide for details on extensions and deferments.
Signing of Tax Return
All tax returns filed on paper must be signed by the taxpayer. If a military member is unavailable or incapacitated, his or her spouse can sign the tax return, but only with a proper Power of Attorney in place. If a taxpayer has died, the surviving spouse may sign the taxpayer’s Tax Return, “Filing as Surviving Spouse.” (However, if an executor or administrator has been named for the person’s estate, that person must also sign the Tax Return.)
How to File
Before you can file your tax return, you must obtain a copy of your W-2 form from your employer. DFAS (Defense Finance and accounting Service) is the agency who manages military pay, and they have both a website and a Facebook page where you can find out when military W-2 forms will be available. Once they are available, copies of your military member’s W-2 can be viewed and printed at the myPay section of the DFAS website.
Paper returns can be filed as soon as you have all the necessary paperwork and have completed your return. The electronic filing start date this year was January 22, so as of today, all filing options are available.
When it comes to information on filing your taxes, Military One Source has stepped up its game with its joint effort with the tax experts at H&R Block. At the Military One Source website, you can find links to information and services that can assist you in both completing and filing your tax return. One great resource is a link to the H&R Block At Home® Free Tax Filing Service. In addition to their free filing service, H&R Block also has a webpage full of links and information useful to military families at tax time.
If you are a fan of Turbo Tax, you will be glad to know that Intuit has released a Military Edition of their Turbo Tax software. Intuit claims this software is specifically designed to seek out information from you that relates to military-specific tax issues and topics. Until February 14, Intuit is offering the software free to military members E1-E5 and at a discounted rate ($24.99, down from the usual $29.99) for E-6 and above.
Intuit also offers a free online filing service with Turbo Tax Online. For taxpayers filing a simple tax return using the 1040-EZ form, Turbo Tax Online is free. They also offer four additional levels of service, ranging from the most basic to a service that can handle Small Business filings (under your personal taxes) and issues such as investments and rental income. Finally, Intuit’s Tax Freedom Project offers free online tax preparation and e-filing to any taxpayer who falls under certain income requirements. Those requirements for the 2012 tax year will be released by Intuit on January 30, 2013, and you can find all the details here after that date.
A couple of lesser-known online tax-filing companies also offer free e-filing for military members. TaxSlayer offers free Federal and State e-filing to “all active duty military” and determines your eligibility by asking you to provide them with the EIN (Employer Identification Number) from your W-2 form. Free Tax USA also offers free Federal e-filing for all active duty military, but they do charge $9.95 per state return.
The IRS stopped mailing out hard copies of tax forms several years ago. If you plan to complete and file your taxes on paper and by mail, you can obtain hard copies of the most commonly used tax forms at most libraries and some local post office locations. You can also download the forms and PDF versions of the instruction booklets form the Forms and Publications page of the IRS website.
State Income Taxes
As if federal tax filing were not confusing enough, state tax filing rises to a whole new level of confusion for many military families. Many military couples hold legal residency in difference states from one another, and it is often the case that neither in a legal resident of the state in which they are currently living. In addition, some military members hold part-time jobs in the states where they are stationed, adding further complication. Intuit has a useful page on determining where a military member needs to file state taxes.
Since the passage of the Military Spouse Residency Relief Act (MSRRA), many military spouses have opted to realign their official state residency with that of their active-duty spouses, which can simplify state tax filing. Again, Intuit provides a webpage with some helpful information as well as links to additional pages that help clarify the MSRRA and address specific situations. A detailed summary (although a fairly complicated one) of how the MSRRA applies to tax filing can also be found here. A somewhat more user-friendly explanation of the MSRRA has been developed by the JAG officers of the U.S. Navy. As is so often the case, military spouses have been on the cutting edge of helping one another understand the MSRRA, and a very active and useful MSRRA Facebook page exists, as well.
Most tax-filing programs and companies allow you to e-file your state taxes for an additional charge. Some states have the capacity for you to file your state tax return directly on their website. The American Institute of CPAs provides a list of each state’s taxing agency here. Your state’s website is the best resource for information on filing your state tax return.
If you need help with a specific question or situation, there are numerous resources available to assist you, including some free options. The Volunteer Income Tax Assistance (VITA) program provides free income-tax assistance to taxpayers who are low-moderate income, elderly, disabled or with limited English proficiency. The IRS provides additional information and tools on this webpage to help you find a VITA counselor near you.
The IRS website has an extensive support platform that is available 24/7. (Online resources are listed in the left sidebar.) On weekdays from 7:00 a.m. – 7:00 p.m. (local time in each time zone, with Hawaii and Alaska following Pacific Time), the IRS also offers telephone assistance at 1-800-829-1040. (Be prepared for long waits during tax-preparation season.)
If you are expecting a refund after you have filed your federal tax return, you can check the status of your refund after January 30, 2013. You can check your refund status either by phone, using an online tool on the IRS website, or using the IRSToGo app. After January 30, visit this IRS webpage for links and phone numbers.
Of course, you always have the option of having a professional prepare your taxes for you. If you are fortunate to have a Certified Public Accountant in your family, you have a great starting point. If not, the American Institute of CPAs provides an online searchable database. If you do not have a tax preparer you know and trust, ask your fellow local military spouses for recommendations. If you live in a military community, your local tax preparers will most certainly be experts in handling military-related tax issues, and your fellow military spouses will be able to point you towards the ones they know and trust.
The easiest way to get started is to gather up your paperwork in a folder or envelope labeled Tax Documents 2013. (You can purchase special file folders to store your tax paperwork, such as receipts, all year, but you can make your own for a lot less money.) Start watching the mail after January 1 each year for tax-related documents. Most banks and investment firms that mail you tax-related documents will place a phrase such as: Important Tax Information Enclosed to make sure you don’t recycle it as junk mail. When you see those envelopes coming in, separate them from the rest of the mail and place them into your Tax Documents folder. Sort your paperwork into categories of Income and Deductions, which will include receipts and forms where you track mileage, statements of property taxes paid, etc.
One final word of advice: numerous tax preparation companies offer you the option to file your taxes through them and get your tax refund “immediately.” The company will issue you a check based on your “anticipated refund,” which they base on the tax return they prepare for you. However, the company will keep a portion of your refund in exchange for the speedy cash in your hands – either a flat rate or a certain percentage of your refund. The IRS has gotten very good at issuing refunds quickly, especially if you file electronically and elect to receive your refund by direct deposit. Most refunds are issued within 21 days of filing, and the earlier in tax season you file, the faster you will receive your refund. While the temptation may be great to get the cash in your hands today, be sure you know how much of your money the tax preparation company will be keeping before you agree to that option.
Taxes, while inevitable, do not have to be intimidating. The worst thing you can do is to not file your taxes. Not filing has serious consequences. While filing your taxes won’t be the most enjoyable thing you do all year, as a military spouse, it certainly won’t be the hardest thing you do, either!
Alisha Youch, MSW is a clinical social worker specializing in Crisis Intervention since 1999. She is a proud Navy spouse since 1995, and she and her husband have one son. In addition to her professional and home activities, Alisha sings with Homefire (a national choir of military spouses), has been an active hospice volunteer, and currently volunteers with her son’s Boy Scout Troop.