Change may increase tax refunds for troops deployed to combat zones
February 27, 2005
Some troops may get heftier refunds this year thanks to tax-credit options for servicemembers who were deployed to a combat zone in 2004.
The Military Family Tax Relief Act of 2003 gives servicemembers the option of whether to include their nontaxable combat pay in figuring eligibility for the earned income tax credit, said Capt. Andrew Slitt, Wiesbaden (Germany) Tax Center officer in charge.
“This year, soldiers don’t get penalized for their deployment income,” Slitt said. “They can include it in their income or choose not to, whichever is more beneficial to them in figuring the earned income credit.”
The earned income credit primarily involves lower-income filers with children. The credit is based on income, with minimum and maximum income limits affecting how much of the credit a person earns. Soldiers may choose to add nontaxable combat pay to earn more of the credit, Slitt said.
Similarly, servicemembers can choose whether to include their nontaxable pay for computing the child-tax credit, which also has minimum and maximum income requirements.
The change affects only nontaxable pay for troops in a combat zone, and does not include nontaxable allowances, such as housing and food, according to the IRS Web site.
Slitt added that the change is updated in the software that the tax centers use and it automatically figures out if it is better to include the combat pay or not.
Slitt gave the example of an E-5 from the 1st Armored Division who had spent two months downrange. The soldier had $23,000 of taxable wages and $5,760 in combat pay.
The software tax office determined that the E-5’s earned-income credit including the combat pay would be $1,355. The credit was $2,566 without the combat pay.
In the end, the soldier got a $7,300 refund, Slitt said.
While the changes could increase the refund for a servicemember who was deployed to a combat zone, IRS tax-filing extensions ensure they won’t be penalized for filing late.
Overseas civilians, servicemembers who were not deployed and other Americans not affiliated with the military have until June 15 to file their 2004 tax returns, Slitt said. However, if filers owe taxes, they will pay interest beginning from April 15, he said.
Servicemembers who were deployed to a combat or hazardous-duty zone have 180 days from the date they return to file their taxes or from the date they leave the hospital if they were hospitalized from an injury in the combat zone, Slitt said. The extensions could lead to servicemembers filing two years of taxes this year, he said.
“If a soldier deployed in February 2003, he gets the extension from February to April 15 , plus the 180 days at the end of the extension,” he said. “We’ve had many soldiers coming in to file for 2003 and 2004 at the same time.”