It’s that time of year again — tax season. And April 15 is just around the corner.
Military Times spoke with Susan Mitchell, the Defense Department’s tax counsel and executive director of the Armed Forces Tax Council, about tips and areas of particular interest to troops and families.
Fortunately, if you’re in the military, there’s no need to pay a tax preparer or 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.
“I always like to advise service members the fastest and most reliable way to file their taxes is electronically, and to choose direct deposit if they’re expecting a refund,” Mitchell said.
There are 14 installations in the United States running Volunteer Income Tax Assistance (VITA) tax centers where you can go to get tax-preparation help in person, according to the Military OneSource locator. These locations — with Internal Revenue Service-certified volunteers who are also trained in military-specific tax regulations — are open to service members of all branches and, in some cases, to retirees. It’s best to call ahead; some require appointments. A limited number of these centers operate overseas, including three in Japan and one in England.
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 is April 15 this year, troops stationed outside the United States and Puerto Rico can qualify for an automatic two-month extension until June 15, both for filing and for paying taxes that are due. That extension is designed to help troops who may have trouble getting all the documents they need.
Those overseas who are unable to file by June 15 can request an additional extension to Oct. 15. But remember that any taxes due must be paid by April 15 (or by the June 15 deadline if overseas). If not, you could be subject to both interest charges and a failure-to-pay penalty, Mitchell said.
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.
This year, service members in designated disaster areas should check to see whether filing extensions apply to them, Mitchell said. For example, deadlines are extended for taxpayers affected by severe storms and flooding in San Diego; wildfires in the Spokane, Washington area; and those affected by storms in parts of Michigan, West Virginia, Maine, Rhode Island and Connecticut. 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 slightly to account for inflation, Mitchell said. There was roughly a 7% increase in the amount of taxable income in each tier, she said, “so hopefully service members won’t find themselves paying more taxes than they have previously, with some of these changes due to inflation.”
For example, single service members with taxable income ranging from $44,726 to $95,375 would be in the 22% tax bracket. Married couples filing jointly with taxable income from $89,451 to $190,750 would 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 $13,850 for single filers and for married couples filing separately; $20,800 for single heads of household who are generally unmarried with one or more dependents; and $27,700 for married couples filing jointly.
“That’s fairly high, and I suspect that most of our service members are not going to itemize because that standard deduction is so high,” Mitchell said.
Itemizing deductions: There are people who have enough tax deductible expenses that they may benefit from itemizing. Those rules haven’t changed much, Mitchell said. 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 2023, 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 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 $63,398 or more with three or more children. The maximum EITC for that group is $7,430.
“The great thing about EITC is it helps lower-income taxpayers reduce the amount of tax that’s owed, on a dollar-for-dollar basis,” Mitchell said. “So 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 2023, the child tax credit is $2,000 per child, age 16 or younger. 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 2023, 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 day care provider for dependent children under the age of 13, or for a disabled dependent. There’s 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 for 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 to you.
The Lifetime Learning Credit covers up to $2,000 in qualified education expenses per tax return, and 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 you 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 $155,000.
Educational assistance from an employer: You can exclude up to $5,250 of those benefits from taxes.
Changes to form 1099K
The IRS is now treating the 2023 tax year as a transitional period regarding reporting transactions involving payment apps such as PayPal and Venmo. For 2023, the 1099K forms are required only for people receiving $20,000 or more with 200-plus transactions, like the previous rules.
The American Rescue Plan 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 2024, the payment processors will report transactions of $5,000 or more on form 1099K, and taxpayers can expect to receive those forms in January, 2025.
Also notable
Adoption of a child: Taxpayers can receive a credit for up to $15,950 of qualified expenses. The full credit is available for a qualified special needs adoption, even it costs less. For joint filers with a modified adjusted gross income of over $239,230, 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 still 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 $300 for 2023, up from $280 in 2022.
Standard mileage rates: The military move mileage rate is 22 cents per mile. Business mileage increased to 65.5 cents per mile, and medical mileage is 22 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 $2,600 in 2023, 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, Mitchell notes. The first $1,250 of a child’s unearned income is tax free for those 18 or younger, or if the child is a full-time student under age 24. The next $1,250 is taxed at the child’s rate. Any excess over $2,500 is taxed at the parent’s rate.
Energy credits: If you installed qualifying exterior windows, doors, skylights, insulation materials, purchased a qualifying new furnace, hot water heater, or central air conditioning, 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, Mitchell said. 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 up to $4,000 or 30% of the purchase price. 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.)
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Tax-savings accounts
In 2024, service members have been able to use dependent care flexible spending accounts for the first time. Enrollment for the accounts was during open season the previous fall, and is administered through the Federal Flexible Spending Account Program, known as FSAFEDS, which is sponsored by the Office of Personnel Management. Service members determine how much money to set aside pre-tax from their paychecks, and it’s deposited into a flexible spending account. Starting in 2024, service members who have enrolled through FSAFEDS are submitting substantiated claims for their dependent care expenses through FSAFEDS, to get reimbursed for their expenses. Make sure you’re submitting those claims in a timely manner to keep that money flowing back to your bank account.
Defense officials are also working with the OPM this year to offer health care flexible spending accounts to service members for 2025. Enrollment will be during open season in the fall. While Tricare provides health insurance for service members and their families, these can help reduce the costs of expenses like co-pays for health care visits and prescriptions, orthodontia, contact lenses and glasses, in vitro fertilization, over-the-counter pain relievers and many other items.
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 said.
“That’s why I recommend using the electronic software. It will perform the more complex calculations and catch any math errors that might happen when filing a paper return,” Mitchell said. Always use the same names exactly as they appear on your Social Security card, and always double check to make your bank account numbers are correct.
She also suggests printing a paper copy of your electronic return and reviewing 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? Mitchell advises first contacting 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.
