In the eyes of the IRS, the US armed forces include any person serving in the Army, Navy, Air Force, and the Coast Guard. They can be commissioned officers and enlisted personnel in the regular and reserve units. Due to the fact that many of these personnel receive different types of pays and allowances, IRS has separated the items that can be reported in their gross income into two categories, includible Items and Excludible Items.
Includible Items are those that you have to pay taxes on and report in your tax return. These pays and allowances can be excludible if they are earned within a combat zone. Anyone one serving within this area are afforded special tax benefits. According to the IRS, a combat zone is "any area the President of the United States designates by Executive Order as an area in which the U.S. Armed Forces are engaging or have engaged in combat. An area usually becomes a combat zone and ceases to be a combat zone on the dates the President designates by Executive Order."
Includible items are Basic pay for active duty and/or attendance at a designated special school and/or back wages and/or drills and/or reserve training. These are usually the pays that are given to almost every personnel that serve in the armed forces. Special pay given out for Aviation career incentives, driving duty, Foreign duty outside of the 48 states and District of Columbia, Hostile fire and Imminent danger, Medical and dental officers, Nuclear-qualified officers, Special duty assignment pay should be reported on the tax return and considered includible items. This also includes any bonuses for enlistment and reenlistment plus any pay received for accrued leave. Student loan repayments are also includible in your gross income under the Department of Defense Educational Loan Repayment Program but the only requirement is the one-year service which can’t be attributable to service in a combat zone. The includible items also include any allowances paid out to officers.
Excludible items are those that you have to report on your tax return but don’t have to pay any taxes on. This includes any special pay you receive for active service in a combat zone although officers receive limited amounts. Living allowances that include basic living allowance, basic allowance for subsistence, housing and living allowances paid by foreign entities or US government for members abroad, and variable housing allowance. Family allowances include educational expenses for your dependents, any emergencies that occur like injuries, expenses incurred for moving to another location due to hazardous conditions and divorce or separation from your spouse. Any expenses incurred due to the death of a family member or your own like traveling to the burial site and death gratuity payment for eligible survivors are all excludible items.
If you incur expenses moving your home, the expenses are also excludible. Things like storage and temporary housing are also covered. Costs of trailer for moving mobile homes or personal items are excludible. These are all moving allowances. Travel allowances that include round trips that you have to make to see your family in the US because you are either in an area that restricts you from taking your family with you or you are in a hazardous zone and you don’t want to take your family with you. This also includes round trips for dependent students and transportation of your family during ship overhaul or inactivation. Other payments that are excludible items from taxes are income earned from defense counseling, disability, group-term life insurance, professional education, ROTC educational and subsistence allowances, retirement and survivor protection plan premiums, uniform allowances, and uniforms furnished to enlisted personnel. Others like Legal assistance, medical and dental care, commissary/exchange discounts, and space-available travel on government aircraft are also considered excludible items.
Hopefully this article helps you roughly see where you stand when you have to file your taxes come this tax season.
