Military Taxes

Many service members dread doing their taxes. Filing military taxes correctly can be a daunting task, especially when you have to interpret rules that change often. Thankfully, there are a lot of great resources available for service members to ensure that they’re paying the right amount and that they’re filing on time. For example, if a member of the military is stationed in Oregon, they must pay state income tax on their entire paycheck—not just the portion that’s withheld for federal income tax. But other states have different rules. Some do not tax service members’ wages at all, while others have stipulations and deductions that may benefit them.

For example, the military allows members to exclude nontaxable combat pay from their taxable income for up to 180 days after leaving a combat zone or qualified hazardous duty area. This can lower their taxable income and may help them qualify for an Earned Income Tax Credit (EITC). In addition, service members can deduct travel allowances when they’re on active duty.

Who Must Pay Military Taxes

Who Must Pay Military Taxes?

Generally, the state of legal residence determines who must pay military taxes. However, service members can qualify for exemptions based on the type of military pay they receive. Compensation that noncommissioned military personnel receive for serving in a combat zone is excluded from taxation. This includes hazard pay and hostile fire/imminent danger pay. However, this excludes combat pay that is retroactively paid to commissioned officers for service in a prior year.

Private creditors may only attach up to 25 percent of a service member’s paycheck to pay debts. The amount attached can be reduced if the service member can prove that the debt has been paid, the claim is false or illegal, or there is a legal obstacle to collecting the debt. Military financial and credit counseling services can help service members negotiate repayment plans with creditors.

The federal Servicemembers Civil Relief Act prevents Wisconsin from taxing nonresident service members’ military pay. These service members report their military income on a Wisconsin tax return by checking the box “Nonresident” in column B of Form 1NPR.

When to Pay Military Taxes

When to Pay Military Taxes?

While serving your country is an honorable act, it does not exempt you from paying taxes. In addition to base pay, military members receive allowances to help cover living expenses. Some of these allowances are nontaxable. Examples include cost-of-living allowances abroad and Basic Allowance for Housing; commercial life insurance premiums; and medical, dental and vision insurance.

Service members can also request automatic deductions, called allotments, from their paycheck to pay for various items. These can include U.S. Savings Bonds, the purchase of life insurance; mortgage or rent payments; deposit to credit unions and banks; and debt counseling services.

New Jersey follows federal law and allows a service member to remain a resident of his state of legal residence while on active duty, regardless of the location of his deployment. All other states have different rules that determine residency. Connecticut, for example, excludes combat zone pay from taxable income. Combat pay can boost an enlisted person’s Earned Income Tax Credit (EITC), which can reduce what he owes or help him get a refund.

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