Note: Whether it’s health care, retirement benefits, family support and child care, VA benefits or other programs, getting smart about the rewards you have earned is worth your time. Although it is not yet clear to what extent federal cuts will affect DOD programs — including quality-of-life initiatives — these benefits were in place as of this writing.
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It’s once again tax season. With deadlines fast approaching and stress mounting, here are some helpful tips to help you navigate the season.
Active duty service members have the option to enroll in a new tax-saving benefit, which became available March 3, that could help defray their health care expenses.
A special enrollment period for the new health care flexible spending accounts will run from March 3 through March 31.
In essence, a health care FSA is a savings account that can be used to pay for items not covered by health or dental insurance. Such accounts have been available for years to employees of many federal agencies and private companies.
Service members can contribute any amount between $100 and $3,300 in pretax earnings toward eligible out-of-pocket health care expenses. The Internal Revenue Service determines eligible expenses and contribution limits, the latter of which may vary by tax year.
To enroll, troops should visit fsafeds.gov, select “Qualifying Life Event” from the “enroll” drop down menu, then choose the QLE titled “Special Enrollment Period for Members of the Uniformed Services March 3-31.”
By contributing to FSAs, taxable income decreases by the contribution amount. Savings depend on a variety of factors, such as how much the service member contributes to the account, and the individual or household tax situation.
If the service member and spouse are both eligible to enroll in a health care flexible spending account through their employers and maintain two separate accounts, the household can contribute between $200 and $6,600 per year. The benefit is administered by the Federal Flexible Spending Account Program, or FSAFEDS, which is sponsored by the Office of Personnel Management.
The health care FSAs will be available to members of the active component and reservists performing Active Guard and Reserve duty. Members of the U.S. Coast Guard Reserve who are on active duty for more than 180 days — including reserve component managers — are also eligible.
Defense officials began offering service members flexible spending accounts for dependent care in 2024, which helps defray the cost of child care. Service members have until April 30, 2025, as a grace period to submit claims for child care expenses they incurred through Dec. 31, 2024.
After this special enrollment period, the yearly enrollment for the FSAFEDS will be mid-November to mid-December of each year.
About those 2024 taxes
These health care flexible spending accounts will help defray costs in 2025, but right now is also the time to get those taxes filed for 2024 — with just a few weeks remaining before the April 15 Internal Revenue Service tax filing deadline.
If you’re in the military or a military spouse, there’s no need to pay a tax preparer for military-specific tax help. Free tax software is offered through Military OneSource’s MilTax resources, which are attuned to unique military benefits and needs. You can file federal and up to three state tax returns through this software.
In addition, service members and family members have access to military tax consultants with special training in military-specific situations through Military OneSource.
The fastest and most reliable way for service members to file their taxes is electronically and to choose direct deposit if they’re expecting a refund, according to Susan Mitchell, executive director of the Armed Forces Tax Council, who recently conducted a webinar for service providers and financial counselors who work with military families.
Additionally, some installations in the U.S. operate Volunteer Income Tax Assistance (VITA) centers where you can go to get in-person tax preparation help.
Check with your military legal assistance office to see if they offer the service, and check with the Military OneSource locator. These locations have Internal Revenue Service-certified volunteers who are also trained in military-specific tax regulations.
The basics
All Defense Department tax statements, including W-2 statements, are available through the military’s myPay site — https://mypay.dfas.mil/.
There are longstanding tax filing extensions available for certain service members. While the federal tax filing deadline this year is April 15, troops stationed outside the United States and Puerto Rico can qualify for an automatic two-month extension until June 15.
That extension is designed to help troops who may have trouble getting all the documents they need. According to the IRS, even if you are allowed an extension, you will have to pay interest on any tax not paid by the regular due date of your return.
Those overseas who are unable to file by June 15 can request an additional extension to Oct. 15. But remember, any taxes due must be paid or you could be subject to both interest charges and a failure-to-pay penalty.
Tax filing deadlines for service members deployed to combat zones are extended for the period of their service in the combat zone, plus 180 days after their last day in the combat zone.
Most allowances service members receive aren’t taxable, such as the Basic Allowance for Housing and the Basic Allowance for Subsistence. But there are exceptions, such as the Basic Needs Allowance, which is taxable.
When service members are serving in a combat zone, their income for that month is generally tax-free; service outside the combat zone may also qualify when in direct support. Combat zones, meanwhile, are designated by executive order.
This year, service members in designated disaster areas should check to see whether filing extensions apply to them. For example, deadlines are extended for taxpayers affected by hurricanes Helene and Milton, and by the the wildfires in California.
Check the IRS page on disaster relief situations for more information.
Tax brackets: There are still seven tax rates for 2023, but the income levels have shifted to account for inflation. For example, single service members with taxable income ranging from $47,151 to $100,525 would be in the 22% tax bracket. Married couples filing jointly with taxable income from $94,301 to $201,050 would also be in the 22% tax bracket. For more information visit the IRS tax rates page.
Standard deductions: After adjusting for inflation, the standard deduction is now $14,600 for single filers and for married couples filing separately; $21,900 for single heads of household who are generally unmarried with one or more dependents; and $29,200 for married couples filing jointly.
Itemizing deductions: There are people who have enough tax deductible expenses that they may benefit from itemizing. The deduction for state and local income taxes, property taxes and real estate taxes is still capped at $10,000. The mortgage interest deduction is limited to $750,000 of indebtedness. Those who had $1 million of home mortgage debt before Dec. 16, 2017, will still be able to deduct the interest on that loan.
Only unreimbursed medical expenses that exceed 7.5% of the adjusted gross income can be deducted.
For charitable donations in 2024, the annual income tax deduction limits for gifts to public charities are 30% of adjusted gross income for non-cash assets, and 60% of AGI for contributions that are made in cash.
Earned Income Tax Credit
The Earned Income Tax Credit applies to eligible low- and moderate-income workers, subject to certain qualifying rules. You may qualify for the EITC even if you can’t claim children on your tax return. The credit could reduce the amount of taxes owed and perhaps increase your refund.
There are special EITC rules and considerations for military members who receive nontaxable pay, such as a housing allowance, or for those who are stationed outside the United States. For more information, visit the IRS page on the EITC for military members.
This credit is phased out at certain income levels and number of dependents. It is completely phased out for married couples filing jointly with an earned income of $66,819 or more with three or more children. The maximum EITC for that group is $7,830.
EITC helps lower-income taxpayers reduce the amount of tax that’s owed, on a dollar-for-dollar basis. A refundable credit means a taxpayer could be eligible for a refund even if they have no tax liability for the year.
That’s typically better than a deduction, which reduces the amount of your income that is subject to tax.
Child and dependent credits
Child tax credit: For tax year 2024, the child tax credit is $2,000 per child, if the child was under age 17 at the end of 2024. It’s also subject to phase out as income rises, starting at $400,000 for joint filers and $200,000 for single filers. For other qualified dependents you can claim a $500 credit.
Child and dependent care credit: You may be able to claim the child and dependent care credit if you paid for the care of a qualifying individual to enable you — and your spouse, if filing a joint return — to work or actively look for work, according to the IRS. Generally, you may not take this credit if you are married and filing separately. However, to learn more about exceptions to the rule, see “What’s Your Filing Status?” in IRS Publication 503, Child and Dependent Care Expenses.
For 2024, the amount of the credit is a percentage of the child care expenses up to $3,000 per child — with a maximum of $6,000 for two or more children — paid to a daycare provider for dependent children under the age of 13, or for a disabled dependent. There is no age limit for a disabled dependent.
The more you earn, the less the percentage of employment-related child care expenses that are allowed. Once your adjusted gross income is over $43,000, the maximum credit is 20% of your employment-related expenses, according to the IRS.
Education credits
The American Opportunity Tax Credit is a partially refundable credit that pays education expenses for students in the first four years of college. Service members can claim up to $2,500 per student, and if the credit brings the tax bill to zero, you can have 40% — or up to $1,000 — refunded.
The Lifetime Learning Credit covers up to $2,000 in qualified education expenses per tax return. It can be used for expenses related to all kinds of educational opportunities, from degree programs to technical classes. You can claim both the AOTC and the LLC on a return, but you can’t claim both for the same student or the same expense.
Student loan interest deduction: You may deduct the lesser of $2,500 or the amount of interest actually paid during the year. Income limits have increased. For joint filers, for example, the phaseout for eligibility for the deduction begins at a modified adjusted gross income of over $165,000.
Educational assistance from an employer: You can exclude up to $5,250 of those benefits from taxes.
Changes to form 1099K
The IRS is treating the 2024 tax year as a continued transitional period regarding reporting transactions involving payment apps such as PayPal and Venmo. For 2024, the 1099K forms are required for people receiving $5,000 or more, regardless of the number of transactions. Previously, the threshold was $20,000 for reporting, with the number of transactions exceeding 200.
The American Rescue Plan Act of 2021 changed the rules to require reporting for taxpayers who received $600 or more in the year, but feedback from taxpayers and payment processors who were confused by the new rules led the IRS to delay the $600 new reporting threshold requirement, Mitchell said.
For tax year 2025, the third-party payment processors will report transactions of $2,500 or more on form 1099K, as the final transition period.
Also notable
Adoption of a child: Taxpayers can receive a credit for up to $16,810 of qualified expenses. The full credit is available for a qualified special needs adoption, even if it costs less. For joint filers with a modified adjusted gross income of over $252,150, the credit begins to phase out.
Educators’ deductions: A number of military spouses are teachers, and they can deduct up to $300 of out-of-pocket expenses for supplies, books and other classroom materials. This deduction can be claimed even by those who take the standard deduction. Those eligible include anyone who is a teacher, counselor, principal, aide or other educator in public or private schools, who has worked at least 900 hours in the school year.
Unreimbursed moving expenses: Service members can deduct unreimbursed moving expenses related to Permanent Change of Station moves. You can’t deduct for any services provided by the government or reimbursed by the government. But while DOD covers many expenses, there still may be some that aren’t reimbursed. Use IRS Form 3903 to deduct those.
Transportation and parking: Monthly limits for the tax-free qualified benefits increased to $315 in 2024, up from $300 in 2023.
Standard mileage rates: The military move mileage rate is 21 cents per mile. Business mileage increased to 67 cents per mile, and medical mileage is 21 cents per mile.
Capital gains taxes for military homeowners: Military homeowners get an extra benefit when it comes to tax exclusions of profit from the sale of their residence. Generally, taxpayers avoid paying capital gains taxes on the sale of their home as long as they’ve owned it and used it as their qualifying principal residence for at least two of the five years preceding the sale. The amount of profit that can be excluded from taxes is $250,000 for single taxpayers, and $500,000 for married couples filing jointly. But military taxpayers can extend that qualifying time period by up to 10 years, for a total of up to 15 years, if they’re assigned to a duty station that’s at least 50 miles from the house for a period of 90 days or more.
“Nanny tax” threshold: If you hired a nanny or other household employee and paid at least $2,700 in wages in 2024, you were responsible for withholding taxes from their pay and then paying taxes of your own.
“Kiddie tax” takes less of a bite, with income limits increasing. The first $1,300 of a child’s unearned income — such as interest and dividends — is tax free for those 18 or younger, or if the child is a full-time student under age 24. The next $1,300 is taxed at the child’s rate. Any excess over $2,600 is taxed at the parent’s rate.
Energy credits: If you installed qualifying exterior windows, doors, skylights or insulation materials, or purchased a qualifying new furnace, hot water heater or central air conditioning unit, you may be eligible for a tax break of up to $1,200 per taxpayer per year, with a $600 limit per item on most types of property. There’s a higher credit of up to $2,000 for a separate category of heat pumps, water heaters and biomass fuel stoves.
If you installed equipment such as solar panels or solar water heaters, you could get a residential clean energy credit valued at 30% of your qualifying expenses.
Those who purchased a used electric vehicle or used fuel cell vehicle from a licensed dealer for $25,000 or less may qualify for a clean vehicle credit of 30% of the sale price, up to a maximum credit of $4,000. There are income limits. For example, your modified adjusted gross income must not exceed $150,000 for married couples filing jointly.
If you bought a new electric vehicle or fuel cell vehicle, that credit is $7,500, if all eligibility requirements are met. For example, the modified adjusted gross income must not exceed $300,000 for joint filers. (See the IRS checklist for more information on eligibility requirements.)
Tips and cautions
Those in the military community aren’t immune from making the common mistakes made by those in the general public. That includes entering wrong Social Security numbers, making math mistakes or omitting income documents that an employer has already reported as income to the IRS.
Mitchell, the executive director of the Armed Forces Tax Council, recommends using electronic software because it performs the more complex calculations and catches any math errors that might happen when filing a paper return. Always use the same names exactly as they appear on your Social Security card, and always double-check to make sure your bank account numbers are correct.
Print a paper copy of your electronic return and review it for possible errors.
- Getting a refund? Check the status of your refund at the IRS web page, “Where’s My Refund?”
- Didn’t receive a tax document? Contact the employer or issuing agency. If they can’t get a copy, contact the IRS for help at 800-829-1040. After you provide your information and your employer’s information, the IRS will contact the employer, but will also send you a substitute form to report the information that’s on the missing document. If the employer sends a document later with different information, the taxpayer may need to file an amended return.
It bears repeating: If you feel comfortable doing your taxes online at home, look into the free MilTax software, and remember you have trained tax consultants available by chat or phone through the MilTax resources of Military OneSource. You may be able to go to a Volunteer Income Tax Assistance site at an installation nearby or qualify for assistance at a VITA location in the civilian community.
Before you sign agreements with other tax preparers who charge fees, make sure you have clear information about the fees involved and any fees involved in their extra services.
It’s against the law for these tax preparers who offer “refund anticipation loans” to charge interest of more than 36% annual percentage rate to active duty members and their families, and fees are calculated into that rate.
Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.
