Taxes can be confusing in the best of times, but where military pay, allowances, and bonuses are concerned, half the battle is determining what is considered tax-exempt, what is subject to taxes and withholding, and when other tax rules such as the Capital Gains Tax may come into play.

It is always best to consult the services of a trained tax professional when in doubt about whether combat pay, re-enlistment bonuses, incentive pay, or pay raises are taxed and by how much. Tax laws change frequently, sometimes yearly depending on the law, and your deductions and liabilities may not be the same from last year to this year.

What follows is not tax advice. Always consult a trained professional for advice and information on tax law. What follows can be considered as a head start on your own homework in this area; don’t go into your next tax season uninformed. What follows does NOT address state tax issues-this article is limited to federal taxes.

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Military Pay And Allowances: What Is Considered Not Taxable By The IRS

One of the first hurdles you will need to overcome when trying to understand how military pay and allowances are taxed by the federal government is how military pay differs from military allowances, and how these things differ from things like hazardous duty pay, reenlistment bonuses, or tuition benefits.

A good general rule of thumb to start off with is that all military pay is subject to federal income tax. Most military allowances are not subject to federal taxation, but there are exceptions (see below). So a service member’s basic pay will be taxed, but not the housing allowance, separate rations allowance or BAS (basic allowance for subsistence), clothing allowance, etc.

A Military Allowance That Is Subject To Federal Income Tax

The military allowance known as COLA, the Cost Of Living Allowance, is an example of a military allowance that is subject to tax under specific circumstances. Stateside COLA is taxable, but the overseas version is NOT TAXABLE at the time of this writing. Overseas COLA is known by several names including OCONUS COLA and receiving this overseas version of the Cost of Living Allowance will not affect your tax position.

Some Tax Breaks Are Affected By Non-Taxable Military Allowances

The IRS allows veterans to claim a tax deduction for military uniforms you cannot wear when not serving or off duty. You are permitted to deduct both the cost of the purchase of these uniforms and any maintenance or upkeep, which is handy for sewing on new stripes after getting promoted and other modifications which may be required. But this tax deduction must be adjusted by the amount of your annual military clothing allowance, where applicable.

Military Retirement Income: Confusion At Tax Time

Military retirement pay is not a “bonus” but since we are discussing tax regulations and attempting to end confusion about what is taxable and what is not, it is important to address one of the most confusing areas at tax time-when your military retirement pay is taxable, and when it isn’t.

Retirement pay is taxable at both the state and the federal level. Most states in the 21st century have offered either a total tax break for qualifying veterans, or some form of a tax exemption for retirement pay. Federal income tax rules require retirement pay including military retirement pay to be considered for taxation. However, if you are drawing disability pay instead of standard military retirement pay, you’ll find that disability pay is commonly given a tax exempt status. Since tax law changes every year, it’s best to consult with a tax professional.

That said, the VA official site reminds, “Disability benefits received from the VA should not be included in your gross income.” What does the IRS consider to be a disability benefit?

• Disability compensation and pension payments
• Grants for homes designed for wheelchair living
• Grants for motor vehicles for Veterans who lost their sight or the use of their limbs
• Benefits under a dependent-care assistance program

The Combat-Injured Veterans Tax Fairness Act of 2016

The Combat-Injured Veterans Tax Fairness Act of 2016 provides tax relief to veterans who have separated from the military and suffer from combat-related injuries. These vets will not be federally taxed on the Department Of Defense one-time lump sum disability severance payment they receive when separating from service.

Any service member who was taxed on this payment are instructed to file an amended return with the IRS to apply for a refund.

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Military Money That Is Not Added To Your Gross Income At Federal Tax Time

The following military pay, benefits, etc. are in general not supposed to be counted in your gross income for federal tax purposes:

• Basic Allowance for Housing, also known as BAH
• Basic Allowance for Subsistence or BAS
• Cost of Living Allowance (COLA) while living overseas
• Overseas Housing Allowance
• Dependent care assistance
• Family Separation Pay
• Dislocation Allowance
• Relocation or storage of household goods
• Mobile home, trailer, or automobile shipment during PCS moves
• Temporary Lodging Allowance or TLA
• Burial services
• Travel of dependents to burial site
• Death gratuity payments to eligible survivors
• Medical / Dental care

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Taxable Military Pay/Benefits

We use the term “pay” here in a broad sense-the following types of income may be included in your gross income at federal tax time unless these were earned in a combat zone. You will need to consult a tax professional to discuss the tax implication of the following in or outside of a combat zone:

• Active Duty Pay
• Reserve Training Pay
• Guard Drill Pay
• Special-Duty Assignment pay
• Aviation Career Incentive Pay
• Diving Duty Pay
• Foreign Duty Pay
• Medical, Dental, Pharmacy, Optometry, and Veterinarian pay
• Nuclear-Qualified Officers Pay
• Enlistment / Reenlistment Bonuses
• Officer Pay
• Career Status Pay
• High Deployment Per Diem
• Cashed-ln accrued leave
• Student loan repayment from programs such as the Department of Defense Educational Loan Repayment Program (certain exemptions may occur if you serve in a combat zone during the repayment period).

Tax laws are subject to change on a frequent basis. It’s bad to assume you must or may not have to claim or declare certain kinds of income related to military service. Always discuss your needs with a tax professional for the most up-to-date rules and regulations affecting your income.

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Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News

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Military families are often eligible to claim certain tax breaks and benefits, and military families with special needs may have more tax advantages than they realize. Do you know what your potential tax breaks may be? What follows should not be construed as tax advice but study the list below to see what you may be able to claim on your next federal tax filing.

There are tax breaks for a variety of situations, and for the purpose of this article the term “special needs” may refer to any family member, including the veteran tax-filer, who may have VA-rated disabilities or other issues that may qualify for federal tax breaks in that capacity.

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Important Tax-Time Choices

Married service members will need to decide how to file; Married Filing Jointly, filing as Head of Household, “Considered Married”, or Married but Filing Separately. The Internal Revenue Service official site warns, “You will generally pay more combined tax on separate returns than you would on a joint return for the reasons listed under Special Rules.”

The IRS also advises those considering filing separately to do two sets of returns – one combined and one not – to see how much tax each of the couple will have to pay. “When figuring the combined tax of a married couple” IRS Publication 501 advises, “you may want to consider state taxes as well as federal taxes”.

Those who choose “Married Filing Separately” should know the IRS warning about deductions. “If your spouse itemizes deductions, you can’t claim the standard deduction.” For couples who choose to file separately, those who claim the standard deduction will be allowed to deduct “half the amount allowed on a joint return” as the basic tax deduction.

Federal Tax Breaks For Military Families With Children Or Dependent Adults

Military families with a permanently disabled member may be able to claim the disabled family member as a dependent. This may be true no matter how old the disabled family member is; if the person is in the care of the individual or couple filing their tax returns, this tax break could be very helpful.

Federal Tax Breaks For Disabled, Retired People Under 65

Military families with special needs fall into many different kinds of demographics. For those who have family members who are permanently disabled, under 65, and retired, the IRS encourages applying for the Tax Credit For the Elderly or the Disabled, which is offered only to those filing IRS Form 1040 or 1040A.

Earned Income Tax Credit For A Permanently and Totally Disabled Family Member

The IRS Earned Income Tax Credit is offered to those supporting a family member who is permanently and totally disabled. You may claim this tax credit for a natural or adopted child, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister or their descendant.

Federal Income Tax Credits For Adopting A Child

Military families who have adopted children may be eligible for a federal income tax adoption credit of up to $13,570 for tax year 2018. IRS Tax Topic 607 at IRS.gov states that you may apply for “tax credit for qualified adoption expenses paid to adopt an eligible child,” plus an income exclusion for adoption assistance offered by an employer where applicable.

This tax credit is considered “non-refundable” which means the IRS limits the credit to your tax liability for the year filed. IRS.gov reminds us, “any credit in excess of your tax liability may be carried forward for up to five years” The maximum amount (dollar limit) for 2017 is $13,570 per child.

Qualified adoption expenses include but may not be limited to:

• Adoption fees
• Court costs
• Attorney fees
• Traveling expenses (including meals, hotels or other lodging, etc.)
• Expenses for the principal purpose of the legal adoption of an eligible child

It is important to note that there is no requirement that the adopted child have special needs, disabilities, or other conditions. This tax credit is for any qualifying adoption.

Federal Tax Credit For Adoption Of A Special Needs Child

The IRS permits an “adoption credit” in the case of adoptions of special needs children. This rule also allows the taxpayer to exclude employer-provided adoption benefits from reported income in such cases.

Child And/Or Dependent Care Tax Credit

Families who pay for dependent care for a child under 13 or a loved one unable to care for themselves may be eligible for a federal tax credit of “up to 35% of your expenses,” according to IRS.gov. However, to qualify for this tax break, “you must pay these expenses so you can work or look for work”.

IRS Tax Credit For Approved Medical Expenses

The IRS allows a tax deduction for medical expenses for the filing individual, dependents, and spouses. You are not allowed to claim deductions for expenses paid for by health insurance, and the deduction is intended only for medical or dental costs you personally paid for in the tax filing year but not for future years.

In general, the IRS official site says the tax filer may include their own medical expenses, “as well as those you pay for someone who was your spouse or your dependent either when the services were provided or when you paid for them.”

The IRS has different rules for those “who are the subject of multiple support agreements,” so if you aren’t sure how this applies to you, ask a tax professional.

That said, the IRS states that a taxpayer who provided “more than half” of a qualifying relative’s support under a multiple support agreement may deduct medical expenses the taxpayer paid on that person’s behalf.

In this context, a “multiple support agreement” considered such when two or more people provide more than half of a person’s support, “but no one alone provides more than half” according to IRS Publication 502.

Federal Tax Credit For The Blind

Blind taxpayers can qualify for a higher standard federal income deduction, but those who are not totally blind will require medical documentation stating the degree of vision impairment.

Federal Tax Credit For Disability-Related Work Expenses

Taxpayers who have a physical or mental disability that limits employment (or, as the IRS official site adds, “…substantially limits one or more of your major life activities, such as performing manual tasks, walking, speaking, breathing, learning, and working” may be permitted to deduct “impairment-related work expenses” for “attendant care services at your place of work and other expenses in connection with your place of work that are necessary for you to be able to work.”

Federal Tax Credit For Disability Payments Received As The Result Of Terrorism

IRS.gov advises taxpayers not to include the amount of disability payments received, “as a direct result of terrorist attacks directed against the United States (or its allies), whether outside or within the United States.”

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Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News

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2019 Reserve military pay dates and schedules. DFAS reserve military pay dates are the 1^st and 15^th of every month unless those dates fall on a weekend or holiday. Whenever a payday falls on a weekend or holiday, pay is issued on the last workday preceding the 1st and the 15th.

Reserve members are paid twice a month. The fifteenth is the mid-month pay and includes pay due from the 1st through the 15th of the month. The 1st of the following month is the end of month pay and includes pay due from the 16th through the last day of the previous month.

Find out which military friendly banks and credit unions pay early.

The mid-month NPA and end-of-month LES/Pay Statements are available through the myPay system based on the dates below:

2019 Military Reserve Pay Calendar

Pay Period	Mid-month Pay Day	NPA* Available	End-of-Month Pay Day	LES** Available
January 2019	Jan. 15	Jan. 8	Feb. 1	Jan. 25
February 2019	Feb. 15	Feb. 8	Mar. 1	Feb. 22
March 2019	Mar. 15	Mar. 8	Mar. 29	Mar. 22
April 2019	Apr. 12	Apr. 5	May 1	Apr. 24
May 2019	May 15	May 8	May 31	May 24
June 2019	June 14	June 7	July 1	June 22
July 2019	July 15	July 8	Aug. 1	July 25
August 2019	Aug. 15	Aug. 8	Aug. 30	Aug. 23
September 2019	Sept. 13	Sept. 6	Oct. 1	Sept. 24
October 2019	Oct. 15	Oct. 8	Nov. 1	Oct. 25
November 2019	Nov. 15	Nov. 8	Nov. 29	Nov. 22
December 2019	Dec. 13	Dec. 6	Dec. 31	Dec. 24

* NPA – Net Pay Advice (for mid-month pay days)

** LES – Leave and Earnings Statements (for end-of-month pay days)

The reserve military pay dates are for all military service reserve branches: Army Reserve, Marine Corps Reserve, Navy Reserve, Air Force Reserve, Coast Guard Reserve.

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New military spouses are keenly aware that being married to a service member means frequent moves and family separations. But not everyone realizes the personal financial pitfalls that can come with following your loved one’s career. Saving for retirement, having a source of dependable income, and taking charge of the household finances are all too easily left on the backburner. Here are some ways to plan for your financial future in the wake of wedded bliss.

Learn as much as you can about budgeting and military money through your installation’s Family Readiness Center.

When you’re new to the military lifestyle, things like pay, basic housing allowance (BAH), and benefits can be really confusing. Many Family Readiness Centers on base have a variety of resources to help you understand your spouse’s pay, allowances, and deductions. Additionally, these groups can also assist you with budgeting and other finance related classes to help you plan and prepare for the days and years ahead. Understanding your spouse’s Leave and Earnings Statement (LES) is a great starting point to determine how much money is coming in and out of your household before other expenses.

Get familiar with military tax credits.

To help offset the common financial burdens for military families, Uncle Sam offers service members and their families several tax breaks. Specifically, the Military Spouse Residency Relief Act exempts military spouses from having to pay state taxes simply because their spouse is stationed there. The only state military and their families are required to pay taxes in is the state in which they’ve set up legal residence. If you need help understanding which credits apply to your situation, most military bases offer free tax preparation services and consulting through the Volunteer Income Tax Assistance program.

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Set up life insurance.

As a new military spouse, the last thing you want to think about is you or your loved one passing unexpectedly. In the unfortunate event that does happen, make sure your family is able to survive financially. This can be ensured for you and your spouse by enrolling in the Servicemember’s Group Life Insurance (SGLI) and Family SGLI. This insurance is inexpensive and easy to enroll. Plus the payment will be automatically withdrawn from your spouse’s pay. Check his or her LES to ensure that premiums are being deducted.

Save for retirement even if you’re not working.

Frequent moves and career changes absolutely make it hard to save for anything let alone retirement, but it’s still essential to prepare. Some military spouses find themselves prioritizing their spouse’s retirement plan over theirs. But don’t make this mistake because preparing for your own retirement, regardless of whether or not you’re currently employed, is just as important. If you are employed, contribute to any employer retirement plans like a 401(k). Be sure to ask about employer matching options which allows you to maximize your contribution. Or, an Individual Retirement Arrangement (IRA) is another great option whether you’re employed or between jobs. Are you self-employed? Consider opening a Simplified Employee Pension, Simple IRA, or Solo 401(k).

On the flip side, make sure your spouse is contributing to his or her Thrift Savings Plan (TSP), which is the government’s form of a 401(k). Consider this: According to the Federal Retirement Thrift Investment Board, if you start contributing 10 percent of your paycheck to your TSP when you are 25 years old, then you’ll have $1 million saved for retirement by age 65. Comparatively, if you wait until age 40 to start contributing 10 percent then you’ll have a about $300,000 saved by age 65. The numbers are clear. Starting to plan for retirement now can make a world of difference in living comfortably later.

Prepare for the inevitable rainy days.

Whether it’s stowing away for the day when your spouse is ready to transition out of the service, ensure you have the cash needed before reimbursement for your next permanent change of station (PCS). It’s important to have some cash saved up for the inevitable rainy day. This will prepare you in advance for a repair on your car or home. Having the money on hand in case you need to fly home in an emergency is a life saver. Make sure that you and your spouse are saving a few hundred dollars each month to prepare. If you never need it, great! But if you do, it’ll put a lot less strain on you, your spouse, and your marriage to know that you have cash on hand when the unexpected happens.

As a new military spouse navigating the sometimes complicated military world, remember that you’re not alone. In addition to the resources listed above, there are endless military spouse-related blogs, magazines, online forums, and Facebook groups available to engage with other military families. They have been in your shoes and can offer you guidance and support when you need it. To start, take the steps in this article to ensure you and your family are taken care of financially. Welcome to the military community!

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Kristen Baker-Geczy is a communications specialist, active duty military spouse, and former MWR marketing coordinator. She was also deployed to Southwest Asia as an Air Force contractor.

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5 Financial Mistakes You Make at Your First Duty Station and How to Fix Them

Your decision to join the military provides many perks. One of them is having a source of steady income and the freedom to spend it however you please. Many new recruits arriving at their first duty station aren’t thinking about savings and being thrifty. But not doing so can lead to unforeseen financial hardship down the road. Set yourself up for success and avoid making these common financial mistakes:

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1. You fail to budget

Many financial problems arise out of the failure to plan for expenses including rent, utility bills, food, and recreational activities. Because this is your first time having a steady paycheck and maybe even the most money you’ve ever had coming in, it can be tempting to assume you can easily afford a night out or that new TV. However, not budgeting your monthly expenses can often lead to serious debt later.

THE FIX: Before you make any financial decision, including opting to move off-base, sit down and write your minimum monthly expenses. Include your cell phone bill, car insurance, student loans, food, etc. compared to your monthly income. This will determine how much is left for additional expenses. If you’re uncomfortable or inexperienced with budgeting, visit your installation’s financial support officer who provides free help with financial planning. Taking this step will help you avoid the other common financial mistakes outlined in this article.

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2. You buy a brand-new car

Most Americans can’t afford a brand-new car. Yet, recruits with little credit history who make around $30,000 annually purchase one. The barracks parking lot of many military installation looks like a car dealership. Remember that even if you’re approved for $25,000, you still have to pay for interest and insurance. This can add hundreds of dollars to the bill. Just because you’re approved doesn’t mean you can afford it.

THE FIX: Don’t be afraid to buy a moderately-priced used car, or, if you live on base and can get around on foot or bike, consider saving for a few months to make a down payment. This goes back to budgeting. Again, speak with your financial support officer to determine how much you can actually afford.

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3. You rent your furniture

So, you’ve moved in to a new apartment and can’t afford to outright furnish it. So, you turn a rent-to-own furniture store. The monthly bill is low, so no big deal, right? Although these establishments advertise low interest costs in the beginning, you will inevitably end up paying more than the actual price of the product. Sometimes you will overpay by hundreds of dollars and for longer than it actually states.

THE FIX: Bargain hunt for furniture. If you have a tight budget for household goods, check out your nearest thrift store, Craigslist, and/or the bulletin boards around base. The one stable thing about military life is that people are constantly moving which means people are always selling their personal belongs for cheap. If necessary, visit your installation’s resource center to see if there’s a lending closet with household items that you can borrow for temporary use.

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4. Living in the moment (financially)

You’re having a night out with your friends when you decide to buy drinks and pay for meals. The next thing you know, you’ve spent $500 in a matter of hours. Although showing your friends how much you appreciate them by picking up the tab is a noble idea, this public display of affection can put a strain on you later. What if your car unexpectedly needs serious maintenance and you realize that you spent way too much on a night out? Or worse, you later realize you’ve spent your rent money.

THE FIX: Say it with me, “budget.” Plan ahead and take a set amount of cash with you when you leave the house. Once you’re out of paper currency, that’s it. There’s no shame in wanting your friends to have a good time, but it shouldn’t be at the expense of your future self.

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5. Not planning for your future

When you’re just starting your career, retirement seems and is 40 or more years away. Knowing that you’ll have plenty of time to save for retirement makes it easy to put off. If you don’t start building your nest egg with that very first pay check, you might find yourself in a situation where retiring in 40 years starts to look more like 50.

THE FIX: Start contributing to the government’s form of a 401(k)-retirement plan, your Thrift Saving Plan (TSP), right away. Consider this: According to the Federal Retirement Thrift Investment Board, if you start contributing 10 percent of your paycheck to your TSP when you are 25 years old, then you’ll have $1 million saved for retirement by age 65. Comparatively, if you wait until age 40 to start contributing 10 percent then you’ll have a about $300,000 saved by age 65. The numbers are clear. Starting to plan for retirement now can make a world of difference in living comfortably later.

Everyone has financial setbacks and missteps when they’re just starting out. If they didn’t, we wouldn’t be able to warn you of the common mistakes new recruits make. Keep these tips in mind. Remember to budget and plan ahead to break the cycle.

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Kristen Baker-Geczy is a communications specialist, active duty military spouse, and former MWR marketing coordinator. She was also deployed to Southwest Asia as an Air Force contractor.

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