Q-1: How will my military pay for active service in the U.S. Armed Forces in a combat zone appear on my Form W-2, Wage and Tax Statement?
A-1: Military pay attributable to your active service in the combat zone that is excluded from gross income will not appear on your Form W-2 in the box marked "Wages, tips, other compensation." However, military pay for such service is subject to social security and medicare taxes and will appear on your Form W-2 in the boxes marked "Social security wages" and "Medicare wages and tips." If you believe you are entitled to the military pay exclusion, but it is not reflected on your W-2, ask your service branch to issue a corrected Form W-2.
Q-2: I am serving in a combat zone, and all of my pay for the year is tax-free. Can I put money into an IRA?
A-2: Yes. It possible for members of the military to count tax-free combat pay when figuring how much they can contribute to a Roth or traditional IRA.
The IRA contribution limit for 2019 is $6,000 for those under age 50 and $7,000 for those 50 and over.
Taxpayers choosing to put money into a Roth IRA don’t need to report these contributions on their individual tax return. Roth contributions are not deductible, but distributions, usually after retirement, are normally tax-free. Income limits and other special rules apply.
On the other hand, contributions to a traditional IRA are often, though not always, deductible, and distributions are generally taxable. Deductible or not, contributions to a traditional IRA must be reported on the return for the year made. Deductible contributions are claimed on Form 1040, 1040A or 1040NR. Nondeductible contributions are reported on Form 8606, which is normally attached to one of these individual return Forms.
For more information about Roth and traditional IRAs, see Publication 590, Individual Retirement Arrangements.
Q-3: I have been serving in a combat zone, and all of my earnings have been tax-free. Can I go back and put money into an IRA for any earlier years?
A-3: Yes. Under a special rule, members of the military who serve in designated combat zone, or have qualifying service outside of a combat zone, are eligible for extension on the deadline for making contributions to an existing or new IRA.
The extension to the IRA contribution deadline is 180 days after the last day you are in a combat zone plus any days that were left for you to make the contribution when you entered a combat zone (or began performing qualifying service outside the combat zone).
If a return has already been filed for a particular year, contributions should be reported on an amended return, Form 1040X. Depending upon the circumstances, military personnel who choose to put money into a traditional IRA for previous tax years may qualify for additional tax refunds.