Tax Credit for Deployed Soldiers
The United States tax system is extremely complex and has many exemptions, deductions and credits of all types, including a number specifically aimed at the elderly, the indigent, children, the disabled and military personnel. Deployed military personnel, especially military personnel deployed in a combat zone, enjoy a number of deductions and tax credits that have been written into the tax code especially to benefit them.
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Combat Pay Exempt From Income Taxes
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Combat pay for military personnel in all branches of the service is exempt from income tax. The combat zone exemption enables enlisted personnel to exclude all income earned for each month they serve in a designated combat zone. The combat pay exclusion for officers is limited to the current maximum combat pay exclusion for enlisted personnel. In other words, more highly paid officers will typically not be able to exclude all of their monthly income under the combat pay exclusion because they are paid more than the highest paid enlisted salary, including combat pay.
Earned Income Tax Credit
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The Working Families Tax Relief Act of 2004 made it legal for military personnel to include tax-exempt combat zone pay or qualified hazardous duty area pay as earned income. This change in the tax laws resulted in significant tax savings for many thousands of military families as they now qualified for the earned income tax credit.
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Example of Combat Pay and EITC
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According to the Bell Policy Center, a married 12-year veteran Marine master sergeant with two children earns a base pay of $39,675, which puts him over the earned income tax credit earnings limits. However, if he was deployed in a combat zone for nine months out of the year, he could exclude 75 percent of his annual earnings, or $29,757, when determining earned income tax credit eligibility. Therefore, with only the $9,919 he earned in noncombat duty counting toward the earned income tax credit, he is well below the eligibility limits and will receive an earned income tax credit based on that amount.
Forgiveness of Tax Liability for Decedents
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Any member of the U.S. Armed Forces who dies while on active duty in a combat zone or dies in any kind of terrorist or military action can have his tax liability for the current year forgiven. This forgiveness of tax liability includes a refund of any taxes or estimated taxes already paid during the current year. The executor of the decedent's estate should file Form 1040 or 1040X within nine months of the decedent's death to claim the tax liability forgiveness.
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