Military Family Tax Benefits


There are certain tax breaks available to military members and their dependents:

Death benefits

The death gratuity paid to survivors of deceased Armed Forces members is $100,000 and is not taxable,  effective for deaths occurring after 9/10/2001.

Sale of principal residence

A taxpayer on qualified official extended duty in the U.S. Armed Services or the Foreign Service may suspend for up to 10 years of such duty time the running of the 5-year ownership-and-use period before the sale of a residence. This applies when the duty station is at least 50 miles from the residence – or while the person is residing under orders in government housing – for a period of more than 90 days or for an indefinite period. This election, which is an option for the taxpayer, applies to only one property at a time.

Deduction for overnight travel expenses of National Guard and Reserve members

Reservists who stay overnight more than 100 miles away from home while in service (e.g., for a drill or meeting) may deduct unreimbursed travel expenses (transportation, meals and lodging) as an above-the-line deduction. The deduction is limited to the rates for such expenses authorized for federal employees, including per diem in lieu of subsistence. Taxpayers use Form 2106 or 2106-EZ to figure the deduction amount and enter it as an adjustment to income on Form 1040, line 24.

Dept. of Defense Homeowners Assistance Program

Payments made after Nov. 11, 2003, under this program to offset the adverse effects on housing values of military base realignments or closures will be excludable from income as a fringe benefit.  Additionally, payments to military members are also not subject to social security or Medicare taxes.

Combat zone extensions expanded to contingency operations

The various extensions granted to combat zone participants to file returns or pay taxes will also apply to those military members serving in Contingency Operations outside the United States, as designated by the Secretary of Defense.

Dependent care assistance programs

Dependent care assistance programs for military personnel are excludable benefits and not included in the military member’s income.

Military academy attendees

The ten percent tax on payments from a Qualified Tuition Program or Coverdell Education Savings Account that are not used for educational expenses does not apply to attendees of the U.S. Military, Naval, Air Force, Coast Guard or Merchant Marine Academies, to the extent the payments do not exceed the costs of advanced education.