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Filing guidelines for military personnel

Payment deferments for new soldiers

In addition, some new military personnel might qualify for a deferral of due taxes even if they are not in a combat zone. If these servicemen and women meet eligibility guidelines, they need only show that their ability to pay taxes was impaired because of their military service.

This special tax relief is granted by the Soldiers and Sailors Civil Relief Act to active duty members of the Army, Navy, Air Force, Marine Corps and Coast Guard. Reservists must be placed on active duty to qualify. National Guard personnel not serving in a "federalized" status (that is, called to active duty specifically by the President) are not covered here.

Under the law, eligible military personnel may delay payment of taxes that came due before or during their military service. The payment deadline is extended to six months after your military service ends. No interest or penalty charges are applied during this time.

To qualify for deferred taxes, active military personnel must:
  • Be in the initial period of military service. This option is not available during re-enlistment periods.
  • Request the deferment. It is not automatic.
  • Prove both that you cannot pay your tax bill and that your inability to pay is because of your military service.
  • Have received a notice of tax due or already be on an installment agreement with the IRS.

If you are eligible for possible tax-payment deferment, you can contact the IRS at (800)829-1040 about your situation and the steps you need to take. And keep in mind that payment deferral does not extend your deadline for filing a return. You may be able to get extra time to file under one of the other provisions, such as overseas posting or combat zone duty, discussed earlier.

Combat pay and the EITC

The Earned Income Tax Credit can be a great tax break for individuals, including military personnel who don't make much money.

To claim the credit however, you must have, as the name indicates, earned income during the tax year. Previously, tax law did not allow service personnel to count nontaxable combat pay as earned income for tax credit purposes.

Now, however, you can add your combat pay (which remains nontaxable) to your earnings in computing how much of the EITC you can claim. This is helpful for military personnel whose earnings for the year might be primarily or completely from combat pay.

The choice to count your combat pay for EITC purposes is yours. In making the decision, you must do a bit of a balancing act. Essentially, you want to earn enough income to qualify for the credit, but not so much that your benefit suffers because the higher your income, the lower the credit.

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Figure the credit amount with and without your combat pay. If it gets you a larger credit, use it. Don't include it if it increases your earned income so much that your credit is reduced. You can run the numbers both ways at the Internal Revenue Service's interactive program, the EITC Assistant, to help you decide.

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