For active duty members of the military, the government provides tax benefits that recognize the challenges associated with frequent moves, overseas deployments and unusual dependent needs.

Some military family tax benefits include:

  • Combat pay exclusion. Taxpayers may be able to exclude pay for service in a designated combat zone. But even though combat pay may be excluded from taxable income, military members can include it in the calculation of their earned income for Earned Income Tax Credit. The effect of this is to maximize the amount of the EITC. Including nontaxable combat pay as earned income may decrease the amount of tax owed and may mean a larger refund. But taxpayers should calculate their taxes with the combat pay as earned income and without to find out what is best for them.
  • Deadline extensions for combat zones and contingency operations. Various extensions granted to combat zone participants to file tax returns or pay taxes now also apply to military members serving in contingency operations outside the U.S. Contingency operations are those that require rapid deployment in support of national policy short of war. Deadline extensions also are available to military families living outside the United States.
  • Deduction of overnight travel expenses. Members of reserve components (including the National Guard) who stay overnight more than 100 miles from home for drill or other military duties may deduct unreimbursed travel expenses.
  • Moving expenses may be tax deductible. Military members who move because of a permanent change of station can deduct reasonable unreimbursed expenses for their households.
  • Sale of principal residence. Members of the military may not have to pay tax on all or part of any gain from the sale of their main home. This benefit depends on how long the taxpayer owns and lives in the home. However, those time rules can be suspended for military members on qualified official extended duty.
  • Dependent care assistance programs. Dependent care assistance programs for military personnel are generally not included in income and, therefore, are not subject to tax.
  • Military academy attendees. Generally, there is a 10 percent tax on payments from a Qualified Tuition Program or Coverdell Education Savings Account if the funds are not used for educational expenses. However, the tax does not apply to attendees of the U.S. Military, Naval, Air Force, Coast Guard or Merchant Marine Academies, as long as the payments do not exceed the costs of advanced education.
  • Free tax help during the tax filing season. The IRS offers free tax help to members of the military and their families through the Volunteer Income Tax Assistance program. A VITA site is easy to find on or off base — even overseas. Use the IRS VITA/TCE Locator tool or contact your installation’s legal office.

A key source of information about federal tax benefits and obligations for military families is Publication 3, Armed Forces’ Tax Guide.