by Lila Quintiliani, AFC®, Military Saves Program Manager
There are several new pieces of legislation that may affect military families’ 2018 tax returns. The implementation of the Tax Cuts and Jobs Act, the Veterans Benefits and Transition Act, and the Combat-Injured Veterans Tax Fairness Act will mean that most military families will be paying less in taxes this year. In some instances, though, taxpayers will have to take action in order to see the benefits of the legislation.
Most Military Families Will Pay Less in Taxes
Because the Tax Cuts and Jobs Act lowered tax rates on most individual filers, many military households will see a reduction of around 3 percent in their federal taxes. In addition to this, the standard deduction almost doubled (from $6,500 to $12,000 for single filers and from $13,000 to $24,000 for married filers) as did the Child Tax Credit, which went from $1,000 to $2,000.
While the Act took away the deduction for unreimbursed employee expenses and move-related vehicle expenses, this does not apply to military members. Military members can still file for unreimbursed expenses that are pursuant to a military order related to a permanent change of station move.
Reservists whose reserve-related travel takes them more than 100 miles from home can still file for unreimbursed expenses, but those who travel less than 100 miles for drill cannot.
New Tax Breaks for Spouses
Some of the new legislation will require a proactive approach for military families. For example, the new Veterans Benefits and Transition Act of 2018 will allow military spouses to choose to use their service member’s state of legal residence as their own residence for state and local taxes, even if they have never resided in that state.
This could be a big boon for dual-income families who have a service member from a state that levies no income tax, such as Texas, but are stationed in a state that has state taxes, such as Virginia. In the past, thanks to the Military Spouse Residency Relief Act (MSSRA) of 2009, if the non-military spouse had previously established the military member’s state of domicile as his or her legal residence, then his or her earnings would have been taxed by the service member’s state of legal residence rather than the state where they earned income.
A big issue with the MSSRA was that if a spouse had not previously established legal residence in the same state with the service member, there was no way to retroactively do that. This new Act seeks to allow spouses to choose to claim the same state of residence as the service member, regardless of when and where they were married and where they are currently living.
The tricky thing will be that for the 2018 tax year, state income taxes may have already been withheld from a spouse’s pay, and he or she will have to file to reclaim those and then file with the service member’s state of domicile if that state has income taxes.
Taking Action to Get Money Back
At least two of the new tax breaks will require service members to amend previously filed returns.
Those who served in the Sinai Peninsula are eligible to claim a Combat Zone Tax Exclusion effective 9 June 2015. Service members will have to obtain a new W2 from the Defense Finance and Accounting Service (DFAS), and file an amended tax return, and they will have to act quickly because there is a 3-year window to file amended returns.
Finally, the Combat-Injured Veterans Tax Fairness Act was implemented last year and deals with veterans who had taxes withheld from their disability severance pay. DFAS sent out letters notifying eligible veterans last summer, and they have until this July to file an amended return, even if they are out of the 3-year window that usually applies.
Find Free Tax Help
Confused about how the new tax laws might apply to you? Free tax help is available for military members. Many installations and local communities have free tax preparation sites. Military OneSource has free tax preparation and e-filing software as well as a toll-free hotline staffed by military tax consultants.
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