If you’re in the armed forces, location can be an important factor in your tax planning. For example, military pay for months in which you serve in a designated combat zone is not taxable. That’s true for those who are enlisted or are warrant officers, but there are limits on the exclusion for commissioned officers. The exclusion can also apply for those who are hospitalized while serving in a combat zone. And if your employer pays military differential pay—an amount that covers the difference between your military pay and your regular salary—while you are in a combat zone, it is reported as regular income, but it is not subject to Social Security and Medicare taxes.
Location can also make a difference when armed forces reservists travel more than 100 miles for home for reserve service. In those cases, their transportation, meals and lodging expenses can be deducted from their taxable income. These are just a few of the special tax rules and considerations for those serving in the military. If you or a family member are in the service and have questions about tax or other financial concerns, please call our office.