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Tax guidelines for the military

Filing taxes is stressful enough under normal circumstances. When you're a member of the armed forces, your tax situation can be even more difficult, especially if you're serving overseas or in a combat zone.

U.S. military personnel, active and reserve, are not exempt from taxes. You must pay any federal taxes owed by the April filing deadline, even when stationed abroad.

But there are some special guidelines that apply to military taxpayers stationed domestically and those serving in hazardous areas. Recently enacted legislation also has enhanced some tax breaks for service personnel and their families.

Paperwork, not payment, relief

First, a look at tax-filing requirements: While the IRS expects its payments by April 15, members of the military have the same right as civilian taxpayers to postpone sending in 1040s for up to six months.

How a service person gets the extension, however, depends on where he or she is stationed.

Military personnel in the United States or Puerto Rico must file Form 4868 to extend the filing deadline to Oct. 15. Submit the form by the April deadline via mail, phone or the Internet. Any tax you owe must accompany the form if you send it by the postal service. However, if you pay your tax bill by credit card or by authorizing an electronic withdrawal, you do not have to submit the form itself.

If you are stationed outside the United States or Puerto Rico, or your tour of duty takes you abroad for the entire filing period, you automatically get two more months to file your taxes. There is no need for an additional form, just send in your return and any tax due by June 15 instead of April 15.

Be sure to write "Taxpayer Abroad" at the top of your 1040 and attach a statement explaining your international posting situation. If you find in June that you still need more time, then you'll have to file Form 4868 to move your tax return deadline to mid-October.

And remember that all extensions are granted for the paperwork only. If you owe tax, it must be paid or arrangements made to meet your bill by the April or June deadline. You will be charged interest on any unpaid tax not sent by the regular due date and could face penalties for late payment.

Where to file

Where you must send your return also depends on your posting.

If you're at a domestic base, send your return and payment to the IRS center that processes materials for your posting. For example, if you are stationed in Texas but your permanent residence is in California, you would send your return to the service center for Texas. Service center addresses are listed in the instruction booklets for each of the tax returns.

If you are stationed overseas and have an APO or FPO address, file your return with the service center in Austin, Texas.

As for state taxes, the Military Spouse Residency Relief Act, which became law last year, could provide tax relief for some husbands and wives. Previously, nonmilitary spouses who joined their service member spouses on military assignment were required to file their state taxes in the states where the service members were stationed, while the service members filed state taxes for their home states. That forced many spouses to file tax returns in states different from their military spouses.

Thanks to the new law beginning in 2009, a nonmilitary spouse can file with the same home state of record/residence as the military spouse, as long as the spouse's sole reason for leaving his or her home state was to join the military spouse at his or her posting. When nonmilitary spouses make this change, the states where they currently reside cannot tax their earned income.

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Combat zone special rules

Tax guidelines change dramatically, however, for soldiers and sailors in war settings.

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 income tax. For commissioned officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received.

The military paymaster should take care of this delineation for you, but you can find a listing of exactly what type of compensation or benefit is deemed taxable or exempt in IRS Publication 3, Armed Forces Tax Guide.

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