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 the 5-year test period for ownership and use for up to 10 years during any period you or your spouse serve on qualified official extended duty as a member of the Armed Forces. You are on qualified official extended duty if you serve on extended duty either at a duty station at least 50 miles from your main home, or while you live in government quarters under government for a period of more than 90 days or for an indefinite period. This election 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, Employee Business Expenses PDF to figure the deduction amount and enter it as an adjustment to income on Form 1040, line 24.

Department of Defense (DoD) Homeowners Assistance Program (HAP)

Payments provided under this program, made to offset the adverse effects on housing values of military base realignment and closures (BRAC), will be excludable from income as a fringe benefit.  Additionally, payments to military members are also not subject to social security or Medicare taxes.

The program has been expanded to members of the Armed Forces (30% or greater disability) who incur a wound, injury, or illness in the line of duty during a deployment in support of the Armed Forces on or after September 11, 2001; wounded DoD and Coast Guard civilian homeowners reassigned in furtherance of medical treatment or rehabilitation or due to medical retirement in connection with a disability incurred in the performance of their duties during a forward deployment occurring on or after September 11, 2001 in support of the Armed Forces; and surviving Spouses of fallen warriors who move within two years of the death of such employee or member. Note:  At this time, applications are only being accepted from Wounded, Injured, or Ill Soldiers and Surviving Spouse applicants. There is currently no HAP approved for Base Realignment and Closure (BRAC) Impacted Personnel.

Combat zone extensions expanded to contingency operations

Extensions to file returns or pay taxes, granted to service members who serve in combat zones or have qualifying service outside of a combat zone, 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.

Military spouse business owners

Military spouses can find tax information, tools, and resources for self-employed and business owners in multiple languages on the Small Business and Self-employed Tax Center webpage. The page includes information on starting a business, running your business, preparing your taxes, filing or paying your taxes, and other detailed information depending on your business type. Other resources for business owners include an A-to-Z index for businesses, the virtual Small Business Tax Workshop and more.