I thought one of the benefits of being deployed to Iraq was that your income wasn't taxed. But I've been looking at my husband's pay slips and while the state isn't taxing him... the federal government is taxing him. Is this right?
2007-10-25 02:17:25 · 4 answers · asked by SC82 3 in Business & Finance ➔ Taxes ➔ United States
IRC section 112 or reg 1.112-1 states that income earned for tome served in a combat zone is not included in gross income, however it is included in gross income for state purposes
2007-10-25 02:30:15 · answer #1 · answered by scott A 5 · 0⤊ 1⤋
When you file your tax return, if he's in the military the income for the time he's deployed to Iraq will be shown separately on his W-2 and will be excluded from being taxed. The excludable amount might be all of his pay, or just part of it, depending on his pay grade. They'd still withhold tax if that's how he filled out his W-4, but if too much has been withheld, you'll get the extra refunded.
The reason they show it at all it that if you're eligible for the EIC, you have the choice whether to include the combat pay or not - if it gives you a bigger EIC, you'd include it, otherwise not - that can go either way so try it both ways. If you include it for EIC, you still exclude it from income tax.
Good luck to him and to you - I hope he stays safe.
2007-10-25 04:00:29 · answer #2 · answered by Judy 7 · 0⤊ 0⤋
If the military is including his pay earned in a combat zone in his gross income he needs to contact his servicing Accounting and Finance Office, Mil Pay Section to have this corrected. If he is a commissioned officer, some of his pay is likely to be taxed as officers to not get a complete exclusion; it is limited to the highest enlisted pay rate. If he's in paygrade O-4 or above, some of his combat zone pay likely will be taxed.
If he has directed additional withholding on Form W-4, that money will be withheld regardless of the combat pay exclusion. Unless he has been in a CZ all year, SOME of his pay WILL be taxable.
2007-10-25 02:41:02 · answer #3 · answered by Bostonian In MO 7 · 1⤊ 0⤋
It may be that some of his pay is not excluded, or that he directed taxes to be taken out even though he has excludible pay. Any taxes not owed will be refunded when he files a tax return.
Quote from military.com:
If you are a commissioned officer (other than a commissioned warrant officer), you may exclude your pay according to the rules just discussed. However, the amount of your exclusion is limited to the highest rate of enlisted pay (plus imminent danger/hostile fire pay you received) for each month during any part of which you served in a combat zone or were hospitalized as a result of your service there.
Your spouse's W-2 will show the amount of excluded combat pay in Box 12 with a code of Q.
Many states exclude all military pay from taxation.
2007-10-25 02:32:06 · answer #4 · answered by ninasgramma 7 · 1⤊ 1⤋