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Tax Relief for our Soldiers: Defending our Defenders

How about all those servicemen and women who were overseas on April 15? Do they have to file income tax returns?

For federal tax purposes, U.S. Armed Forces include officers and enlisted personnel in all regular and reserve units controlled by the Secretaries of Defense, of the Army, Navy, and Air Force. The Coast Guard is included, but not the U.S. Merchant Marine nor the American Red Cross.

Combat Pay Exclusion

Soldiers deployed to Iraq, Kuwait, Afghanistan and other countries in that theater or otherwise considered to be in a combat zone, along with those countries in the Balkans, are allowed extra time to file and pay their income taxes. Click here for a list of 2009 combat xones. Soldiers will have at least 180 days after they redeploy home to file their federal tax returns, and no penalty or interest will accrued during this period.

U.S. Armed Forces civilian employees and contractors deployed to a combat zone in direct support of the military are also eligible for these tax extensions.

Soldiers also do not pay any income taxes on the wages they earn while deployed in a combat zone, nor do they pay taxes on hazardous-duty pay. For enlisted troops and warrant officers, if any part of a month is spent in a combat zone, then that entire month's wages are exempt. For officers, the exclusion is limited to the highest rate of enlisted pay.

Afghanistan has been considered a combat zone since Sept. 19, 2001. Jordan, Pakistan, Tajikistan, Kyrgystan and Uzbekistan have also been designated as areas in direct support of the military operation for Enduring Freedom. Kuwait was declared a combat zone in 1991 along with the Persian Gulf, the Red Sea, Gulf of Oman, Gulf of Aden Iraq, Saudi Arabia, Oman, Bahrain, Qatar and the United Arab Emirates. That designation has never been lifted. Bosnia and Herzegovina, Croatia, Macedonia and Kosovo are considered hazardous duty areas and soldiers serving there receive the same deferral on their taxes as those in combat zones.
If you're serving in a designated combat zone or hazardous duty area, much of your military pay and reimbursements will be exempt from federal tax.

To determine exactly what compensation or benefits are taxable and what are exempt, see IRS Publication 3, Armed Forces Tax Guide (see http://www.unclefed.com/IRS-Forms/2002/p3.pdf or call 1-800-829-3676)

For enlisted troops and warrant officers, if any part of a month is spent in a combat zone, then that entire month's wages are exempt. For officers, the exclusion is limited to the highest rate of enlisted pay. There are also automatically later deadlines for filing tax returns, paying taxes, submitting refund claims or taking other actions with the IRS. The basic extension period is 180 days, but it might be lengthened depending upon when in the tax season you were shipped to a combat zone.

You don't have to be in a combat zone for IRS relief rules to apply. If you are deployed to a region in support of but not directly involved in combat, you also receive the 180-day (or more) extensions. In addition, the deadline for the IRS to take certain actions, such as tax collection and examination of your returns, is extended and no penalties or interest will be imposed for not filing or paying taxes during this time.

The extension of time to file also applies to spouses of military members deployed to combat zones. On the other hand, if a family is owed tax refunds and wants to get money back immediately, the spouse back home can file tax returns on behalf of the deployed soldier.

What about Pennsylvania?

Military pay earned by PA residents is fully taxable unless received while on federal active duty or federal active duty for training outside Pennsylvania. Income received by a PA resident for military service performed inside Pennsylvania, even if on federal active duty or federal active duty for training, is fully taxable as compensation.

Income received for military service outside Pennsylvania while on active duty as a member of the Armed Forces of the United States is not taxable as compensation. You may deduct such income if included in your W-2 form. Therefore, when completing your PA income tax return, do not include military pay earned outside of Pennsylvania on Line 1a. of yourPA return. Attach a copy of your orders to the copy of your W-2 along with an explanation of the amount of income excluded from Line 1a.

PA reservists and National Guard members ordered to active duty for training pursuant to Title 10 or Title 32 of the U.S. Code are on federal active duty. When performing active duty service outside Pennsylvania, such military pay received is not taxable.

For more information see https://revenue-pa.custhelp.com

Soldiers and Sailors Civil Relief Act

This federal statute can help servicemen and women stop a civil legal action ( not a criminal action) and avoid default judgments if they cannot attend court due to military obligations. Civil actions that can be stopped include (but are not limited to) bankruptcy, foreclosure, and divorce proceedings. It also provides some other relief provisions including protection from lease termination in certain circumstances, limiting the interest rate on certain debts, and protection from some state taxes.

Federal soldiers' relief acts date back to the Civil War. The policy behind Congress' passage of these acts was two-fold: (1) it wanted service members to fight the war without worrying about problems that might arise at home, and (2) most of the soldiers and sailors were not well paid, so it was difficult for them to honor pre-service debts such as mortgages or other credit.

Our current Soldiers and Sailors Relief Act is circa 1940 and has been effective since then. It is a very powerful protection for service men and women.

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Spencer Law Firm LLC
320 Race Ave
Lancaster, PA 17603

Toll Free: 866-639-5451
Phone: 717-207-7935
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