Tax Incentives and Reliefs for US Military and Veterans
OVERVIEW
There are a number of tax incentives and reliefs available to US Military. As a specialist US accountancy firm to US military worldwide, we are passionate about keeping our clients informed on all of the need-to-know tax facts.
In the article we will cover a brief overview of the different tax reliefs and incentives for US military and veterans.
COVID-19 UPDATE
A reported 3.2 million people have filed for un-employment after being laid off as a result of the pandemic. Though many are optimistic that they may be able to return to their jobs when the pandemic is over, economists warn that 40% of job loss could be permanent.
The White House has asked for revisions to a CDC draft document that offers advice to local government on the matter of reopening schools and public places determining that it was “overly specific,”
Military Aid for COVID-19
The military are included amongst those who are entitled to government aid due to the affects of the virus. From tax relief to financial aid below is a compiled list of aid available to military personnel.
Coronavirus Impact Payment for the Military
The military are amongst those who are entitled to the Coronavirus Economic Impact Payment. This one-time payment comes as part of the $2 trillion stimulus package and offers up to $1,200 to Americans who have been adversely affected by the coronavirus
What is a coronavirus stimulus check?
The payment — which the IRS is calling an "economic impact payment," the government has named a "recovery rebate," and many people are calling a "stimulus check" — is technically an advance tax credit meant to offset your 2020 federal income taxes.
Treasury officials set a May 5th deadline for veterans with dependents who missed out on coronavirus stimulus checks in April.
TAX RELIEFS FOR US MILITARY
FOREIGN EARNED INCOME EXCLUSION
One of the most common queries we are faced with when talking to US military clients is regarding their eligibility to Foreign Income Exclusion (FEIE). FEIE Allows taxpayers to omit up to $105,900 of income earned overseas. In order to qualify for the exclusion armed forced professionals must meet the requirements of one of either the Physical presence test, or the Bona-Fide Residence Test.
Physical Presence Test
To meet the physical presence test you must be physically present in a foreign country or countries for at least 330 full days during a 12-month period including some part of the year at issue. You can count days you spent abroad for any reason, so long as your tax home is in a foreign country.
Bona Fide Residence test
To meet the bona fide residence test if you are a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire tax year. If you are a calendar year taxpayer, an entire tax year is from January 1st through December 31st. During your period of bona fide residence in a foreign country, you may leave that foreign country for brief or temporary trips back to the United States or elsewhere so long as you clearly intend to return to your foreign residence or to a new foreign bona fide residence without unreasonable delay
Dept. of Defence Homeowners Assistance Program
The military’s Homeowner’s Assistance Program is designed to help homeowners who have trouble selling their homes because of a Base Realignment and Closure (BRAC) initiative
This program provides aid in the form of monetary relief to military personnel. The Eligibility criteria is as follows:
PCS orders require relocation of more than 50 miles.
Reassignment ordered between 1 February 2006 and 30 September 2012 (or earlier date designated by Secretary of Defence).
Property purchased or contracts to purchase signed before 1 July 2006.
Property sold by owner between 1 July 2006 and 30 September 2012 (or earlier date designated by Secretary of Defence).
Property was the owner’s primary residence.
Owner has not previously received these benefit payments.
Other eligible personnel:
Personnel transferred or terminated within six months prior to the announcement who were owner-occupants at the time of transfer.
Civilian and military personnel on overseas tours who transferred within three years prior to the announcement and who are homeowners in the area.
Combat Zone Extensions to Contingency Operations
The various extensions granted to combat zone participants to file returns or pay taxes will also apply to those military members serving in Contingency Operations outside the United States, as designated by the Secretary of Defence.
Dependent Care Assistance Programs
Dependent care assistance programs for military personnel are excludable benefits and not included in the military member’s income.
Military Academy Attendees
The ten percent tax on payments from a Qualified Tuition Program or Coverdell Education Savings Account that are not used for educational expenses does not apply to attendees of the U.S. Military, Naval, Air Force, Coast Guard or Merchant Marine Academies, to the extent the payments do not exceed the costs of advanced education
Combat Pay
As a military member you do not have to report non-taxable pay you receive as a member of the Armed Forces as earned income for purposes of the EITC. Examples of non-taxable military pay are combat pay, the Basic Allowance for Housing (BAH), and the Basic Allowance for Subsistence (BAS). The amount of your non-taxable combat pay is on your Form W-2, in box 12, with code Q.
But, you and your spouse can each choose to have your non-taxable combat pay included in your earned income for purposes of the EITC. Including it as earned income may decrease the amount of tax you owe and may mean a larger refund.
Militax
Militax is a “Department of Defence-funded program” for military personnel. This service is designed to provide tax help specifically geared towards the military. It is a free service that includes tax prep and e-filing software to aid the members with filing their tax return.
TAX RELIEFS AND INCENTIVES FOR VETERANS
The IRS has committed to supporting all US Veterans. Below is some of the different tax reliefs available to veterans.
Tax Exclusion for Veterans Education Benefits
If you serve or served in the military and are receiving Department of Veterans Affairs education benefits, the IRS excludes this income from taxation.
Free Financial Coaching for Veterans
The government offers a Financial Coaching Initiative focused on Veterans to assist with their financial goals. This program places certified financial coaches in organisations around the country to provide free individualised financial support services.
Combat-Injured Veterans Tax Fairness Act of 2016
The Combat-Injured Veterans Tax Fairness Act of 2016, went into effect in 2017. Under this federal law, Veterans who suffer combat-related injuries and are separated from the military are not to be taxed on the one-time lump sum disability severance payment they receive from the Department of Defence.
Veterans Affairs Disability Benefits
Disability benefits received from the Veterans Affairs should not be included in your gross income. Payments that are considered disability benefits include:
Disability compensation and pension payments for disabilities paid either to Veterans or their families,
Grants for homes designed for wheelchair living,
Grants for motor vehicles for Veterans who lost their sight or the use of their limbs, or
Benefits under a dependent-care assistance program.
Federal Employment
If you are a Veteran and have a disability , you may qualify for internships or you could be hired non-competitively for any federal position for which you qualify. The Veterans Employment Program Office is designed to provide quality training and work experience to wounded warriors and Veterans to aid them in finding job placements.
Veterans in Crisis
The veterans crisis line is in place to connect veterans, and their family members who are in crisis with qualified responders to talk through their current situation, offer advice and an ear to those who need it. The line is toll-free and confidential and should be used by any veterans who feel they are in crisis.
The number is 1-800-273-8255
MORE HELP
There is a lot of aid on offer to members of the armed forces. The amount can be overwhelming, and we are here to help. If you have any further enquires do not hesitate to contact us for your financial needs.