Members of the armed forces sacrifice greatly for our country. Because of this, the IRS provides them with certain tax breaks. Military members have special tax deductions, credits, and can even claim some pay as exempt from federal income taxes. The following are some of the most significant tax benefits for military members.
Combat Pay is Tax-Free. Military members are not entirely exempt from paying income taxes. However, if they are in an active combat zone or assigned to a unit that supports those in a combat zone, that portion of their pay is exempt from federal taxes. It will also be exempt from state taxes as well—in every state except New Jersey. Combat pay is only exempt up to $5,460 per month, but that corresponds to the highest amount that an enlisted soldier can make.
Tax Benefits for Veterans
Veterans may also be entitled to certain tax benefits. If the Department of Veterans Affairs increases a veteran’s disability percentage, that veteran may be able to claim a retroactive federal refund.
The veteran may also be able to request a federal refund if he or she is granted Combat-Related Special Compensation after also being awarded Concurrent Retirement and Disability. In both situations, the veteran may have to file an amended return to get his or her refund.