WASHINGTON (Army News Service, March 18, 2003) -- Soldiers deployed to Kuwait, Afghanistan and other countries in that theater, along with those in the Balkans, will be allowed extra time to file and pay their income taxes.
Soldiers will have at least 180 days after they redeploy home to file their federal tax returns, and no penalty or interest will accrue during this period. Army 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. Deployed civilians, though, are not eligible for this exemption.
IRS Acting Commissioner Bob Wenzel sent a letter last month to Secretary of the Army Thomas White urging tax compliance among civilian employees. The letter stated that almost 4.5 percent of the Army's employees had some type of federal income tax delinquency as of October.
"The rate of (tax) compliance among federal employees and retirees continues to be better than that of the general public," Wenzel said in the letter. "However, our most recent data shows a significant number of potentially non-compliant federal employees and retirees."
"If the public perceives that federal employees do not maintain the highest level of tax compliance," Wenzel wrote, "public confidence in government will suffer."
The automatic extension of time for soldiers to file their taxes is based on service in a combat zone or qualified hazardous duty area. 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 combat for Enduring Freedom.
Kuwait was declared a combat zone in 1991, and 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, according to IRS rules.
Cassandra Charlton, an IRS senior analyst, said deployed soldiers are entitled to extensions because "they're putting their lives on the line for us."
In addition to the extra time to file, soldiers in a combat zone do not pay any income taxes on the wages they earn while deployed in the area. 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.
Hostile fire or imminent danger pay is also excluded from income tax.
Army Reserve and National Guard soldiers called to active duty - even stateside duty - might also qualify for a deferral of taxes owed, if they can show that their ability to pay taxes was impaired because of their military service. The Soldiers and Sailors Relief Act provides this benefit.
This deferral is also available to new recruits, IRS officials said. It extends the payment deadline for taxes until 180 days after the first term of service ends. Soldiers must request this deferral, however. It is not automatic like the deferment for soldiers in combat zones.
Furthermore, if deployed soldiers did not file income-tax returns for 2001 or earlier, being in a combat zone will not exempt them from late penalties for past years, IRS analyst Charlton said.
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.
Upon returning home from a combat zone, soldiers normally have more than 180 days to file their returns. The tax deadline is also extended by the number of days between deployment and April 15. For example, if a soldier was deployed Jan. 15, then he would have had three months to file his taxes before the normal April 15 deadline. So upon returning home, he will have 180 days plus another three months to file.
When soldiers file their returns, the IRS advises them to attach a statement explaining what situation qualifies them for the extension. Or they can write in red letters "Enduring Freedom" on the front of their return if it applies.
The Internal Revenue Service also announced that changes in the Earned Income Tax Credit law will expand the number of military personnel who qualify for tax relief.
Among the significant changes for the 2002 tax year was a redefinition of what constitutes earned income. Now, earned income no longer includes nontaxable income such as military pay for housing, subsistence allowances or combat. The change will expand the number of military personnel who may be eligible for the credit, according to IRS officials.
Both the income limits and the maximum credit have increased for the 2002 tax year with the automatic cost of living calculations. To be eligible for a full or partial credit, a taxpayer must have an adjusted gross income of less than:
$33,178 ($34,178 married filing jointly) and two or more qualifying children;
$29,202 ($30,202 MFJ) and one qualifying child;
$11,060 ($12,060 MFJ) with no children.
The maximum earned income credit is $4,140 for families with two or more qualifying children, $2,506 for families with one qualifying child and $376 for an individual without children.
For a complete list of EITC requirements, taxpayers can review Publication 596 which is available on IRS.gov or by calling 1-800-TAX-FORM (1-800-829-3676). The IRS Web site (www.irs.gov) can also answer questions about income-tax requirements.