New Tax Breaks for Military Personnel and Their Families
Military personnel and their families can benefit from several
new tax breaks. The Military Family Tax Relief Act of 2003
allows, among other things, certain benefits and gains to
be excluded from income on the federal income tax return.
Reporting a lower income reduces the amount of taxes owed.
Death Benefits For deaths occurring after September 10, 2001, the
new law doubles the benefit paid to survivors of deceased
Armed Forces members from $6,000 to $12,000 and makes that
entire amount tax-free. Previously, only $3,000 was tax-free
and the remaining $3,000 was taxable.
Recipients who have already paid tax on benefits received
for deaths after September 10, 2001, may file an amended return
on IRS Form 1040X, Amended U.S. Individual Income Tax Return.
On the return, they should reduce their adjusted gross income
by the $3,000 they had previously reported as taxable on a
federal income tax return and put the words "Military Family
Tax Relief Act" in red at the top of the amended return
to speed processing. Those who receive death benefits in 2003
and future years will not have to report them on their tax
returns.
Home Sales For homes sold after May 6, 1997, a taxpayer on qualified
official extended duty in the U.S. Armed, Uniformed or Foreign
Services may suspend, for up to 10 years of such duty time,
the running of the 5-year ownership-and-use period before
the sale of a residence. This applies when the duty station
is at least 50 miles from the residence -- or while the person
is residing under orders in government housing -- for a period
of more than 90 days or for an indefinite period. This election,
which is an option for the taxpayer, applies to only one property
at a time.
Although taxpayers normally have only three years to file
an amended return, qualifying taxpayers who sold a residence
before 2001 have until November 10, 2004, to amend their returns
for this purpose. Taxpayers amending a return to use this
provision should put "Military Family Tax Relief Act"
in red in the top margin of Form 1040X.
Deduction for Overnight Travel Expenses of National
Guard and Reserve Members For tax years after 2002, reservists who stay overnight
more than 100 miles away from home while in service (e.g.,
for a drill or meeting) may deduct unreimbursed travel expenses
(transportation, meals and lodging) as an above-the-line deduction.
The deduction is limited to the rates for such expenses authorized
for federal employees, including per diem in lieu of subsistence.
For 2003, taxpayers will use Form 2106, Employee Business
Expenses, or 2106-EZ, Unreimbursed Employee Business Expenses,
to figure the deduction amount and carry it as a "write-in"
to Form 1040, line 33, putting the letters "RC" and the
amount on the dotted line and including this subtraction in
the entry for line 33.
Combat Zone Extensions Expanded to Contingency Operations The various extensions granted to combat zone participants
to file returns or pay taxes will also apply to those serving
in Contingency Operations, as designated by the Secretary
of Defense. This is effective for any acts whose deadline
has not expired before November 11, 2003.
Department of Defense Homeowners Assistance Program Payments made after November 11, 2003, under this
program to offset the adverse effects on housing values of
military base realignments or closures will be excludable
from income as a fringe benefit.
Dependent Care Assistance Program For tax years after 2002, dependent care assistance
programs for military personnel are excludable from income.
Military Academy Attendees For tax years after 2002, the ten percent tax on
payments from a Qualified Tuition Program or Coverdell Education
Savings Account that are not used for educational expenses
does not apply to attendees of the U.S. Military, Naval, Air
Force, Coast Guard or Merchant Marine Academies, to the extent
the payments do not exceed the costs of advanced education.
If a taxpayer no longer has copies of his or her previous
tax returns, the taxpayer may use Form 4506, Request for Copy
of Tax Return, to order an earlier year's tax return, or
Form 4506-T, Request for Transcript of Tax Return. The IRS
charges $39 for each return requested, but charges nothing
for a transcript. IRS forms are available on this Web site
or by calling toll-free 1-800-TAX-FORM (1-800-829-3676).
More information on the Military Family Relief Act of 2003
and other tax issues affecting the military can be found in
IRS Publication 3, Armed Forces Tax Guide, also available
on this site or through 1-800-829-3676.
Links:
Form
1040X, Amended U.S. Individual Income Tax Return (PDF)
