The ongoing COVID-19 crisis may have pushed the due date back, but taxes are just as certain in 2020 as they are any other year. With July 15th being the delayed filing deadline, the belated tax season is fast approaching. And as it does many of you, particularly you who are filing for the first time as an active, reservist, veteran, or retired member of the military may have questions about how taxes apply to you. So we’ve put together this simple but comprehensive guide to taxes and the military community.
Do Military Pay Taxes?
The short answer: yes.
Active duty military, as well as reservists, do pay taxes on their military pay. We’ll go into further details of the different things you pay taxes for at various levels below.
Federal Taxes for Military
Active Duty and Reserves
You may be thinking – do active duty military pay federal taxes? To reiterate, active duty military pay federal taxes. As do reservists for the income they earn during drill and annual training (this will include the income from their civilian job). All base pay, which is your basic salary, is subject to the main federal taxes: Social Security, Medicare, and standard income tax. The Internal Revenue Service’s regulations on how federal taxes apply to military personnel is contained in their Publication 3, also called the Armed Forces Tax Guide. If you have concerns or questions we don’t cover here, please check the tax guide or your tax professional. .
Remember: your base pay is just your standard, basic salary. The following items are not required to file for federal taxes:
Many veterans have certain tax exempt allowances, such as:
- Disability payments
- GI Bill BAH
These are considered government benefits (just like BAH, etc) and, therefore, non-taxable. But you pay regular taxes on your income just like any civilian. There are no blanket federal tax exemptions for disabled veterans. But some disabled veterans can apply for special considerations only if they meet certain specific circumstances regarding your disability.
A military pension, unlike disability benefits, qualifies as military income much like a regular salary. That means retirement pay is subject to federal taxes in the same way active duty base pay is.
Military spouses pay federal taxes on their jobs just like any other civilian job. However, if filing jointly with their spouse, that means they have access to the same filing programs and benefits as them.
State Taxes for Military
Unlike federal taxes, which all currently serving personnel pay on their income, state taxes vary widely for service members.
And remember: you pay state taxes in the state of your legal residence, not in the state you’re currently stationed.
Here’s how the state tax rates break down for different segments of the military community.
Active Duty and Reserves
Many states tax military income on the same basis as the federal system, taking out standard income percentages only. Others do not tax military pay, though some of these require you to fill out a waiver in order to qualify for exemption or have other stipulations on how much they tax you. And other states just plain don’t have income taxes at all.
States With No State Tax
If you’re a legal resident of one of the following states, you will not be required to pay state taxes:
- New Hampshire
- South Dakota
All others should check with their state’s government website to learn the specific regulations.
As with federal taxes, your veterans benefits are non-taxable. However, if you have a civilian job you may be required to pay state taxes.
Retirement pay is taxed to some degree by several states. Most, however, don’t make you pay taxes on it or offer certain, specific exemptions or provisions. In fact, there are 30 states that don’t tax military retirement pay or are fully exempt military pensions.
There are only eight states that tax military retirement like standard income:
- New Mexico
- North Dakota
- Rhode Island
The other 42 states are fairly tax friendly states for military retirees.
How to File State Taxes for Military Spouse
Things are a little different when it comes to state taxes for military spouses. Because they have a little leeway in deciding what state they pay taxes in due to the Military Spouse Residency Relief Act (or MSRRA). In its original form, passed in 2009, the act allowed spouses living with an active duty service member in states other than the one they’re legal residents of to pick which state they want to pay taxes in. It was updated in 2018 to allow for a third option: spouses can choose to pay taxes in the state their service member is a legal resident of. The purpose of the act was to allow military households ways to simplify their tax filing. It has the bonus result of allowing spouses the choice of whichever applicable state has the most beneficial tax system.
Available Tax Services
Okay, so you know what taxes apply to you and why. Now comes the actual hard part: filing and paying them. Luckily, there are some great assets out there to help you get this process over with as painlessly as possible.
Active Duty and Reserves
If you’re currently serving in some capacity, you probably have enough on your plate without having to worry about figuring out how much you owe and how to pay it. Luckily, there are a few great options for assistance in getting your taxes done.
Short for Volunteer Income Tax Assistance, this IRS program operates tax centers all over the country near military bases and communities. They provide all tax related services free of charge to active duty, reserve, and retired personnel. Their staff members are professional experts in military taxes who know exactly what you need to do to get yours in order. And it’s super easy to find the VITA location closest to you.
For those who prefer to file on their own from home, or those who just don’t have access to a VITA office, MilTax has you covered. Provided by the DoD through Military OneSource, the program offers tax filing software as well as professionals you can chat with online, over the phone, or in person. All free for active duty personnel.
Tax Services for Veterans
There are no government run programs to help veterans in general prepare and file their taxes. But several organizations and companies offer assistance and/or discounts to those vets who qualify.
A program run by the United Way, MyFreeTaxes offers free online tax filing for anyone making less than $62,000 a year.
2. TurboTax Freedom Edition
You qualify for this free version of TurboTax if you earn an income below $36,000. Individuals eligible for an Earned Income Tax Credit (EITC) can get it as well.
3. H&R Block’s Free File
If you qualify for IRS Free File software (meaning you make under $69,000), H&R Block has an online system to walk you through it for no extra charge.
4. Online Taxes (OLT)
Just like H&R Block, OLT will walk you through IRS Free File software if you qualify.
In addition to qualifying for VITA, many retirees may now or will someday qualify for Tax Counseling for the Elderly (TCE). TCE is similar to VITA, insomuch as it provides free tax services to those who qualify. But, as its name implies, it’s for anyone 60 or older (retiree, veteran, or civilian). Their personnel have special expertise on tax issues related to things like retirement and pensions.
While there are no tax filing programs established solely for military spouses, as we mentioned above those filing jointly with their service members can take advantage of things like VITA and MilTax when doing so.
Filing Tax Return on Your Own
All Americans have the legal right to download their IRS paperwork to complete their taxes on their own for free. It can be a complicated process, which is why so many of us pay for services or accountants to make sure it’s done right. However, anyone making under $69,000 a year can download the IRS’s Free File Online software for no cost to help you file.
Delaying the due date to file taxes no doubt eased some of the difficulties of the current global crisis for many of us. But with the country gradually reopening, it’s time to start gathering the paperwork, and hunting down our tax receipts. And hey, the sooner you finish the filing process, the sooner you can stop worrying about it. Until next year, at least. Who knows, maybe you’ll get a big tax refund. We certainly hope you do.