When the tax man cometh for our troops

When the tax man cometh for our troops
In addition to worrying about terrorists and buried bombs, it turns out that about 60,000 active-duty troops and reservists have another fear-inducing group gunning for them: the Internal Revenue Service.
MAY 02, 2012
By  Jim Pavia
A recent story about how members of our armed forces owe the IRS a collective $390 million in back taxes caught my eye, so I felt compelled to do some further digging. One reason for the big tax bill, tax experts say, is that military returns are more complicated than those of civilians. It isn't that their income is so high or that it derives from so many sources. It is more a matter of confusion over complicated eligibility rules for tax breaks on income earned while serving in combat zones. Ordinarily, U.S. military salaries are taxable just like civilian income. But service members get an exemption from federal income taxes on their entire pay for any month that they serve in a combat zone. Any additional pay for coming under hostile fire or imminent danger also is tax-exempt. However, Social Security and Medicare taxes are nonexempt, even for service members in a combat zone. The law also waives all taxes for troops who die in action. The tax exclusion applies to the soldier's entire income, not just his or her military pay. It is very difficult to figure out what to include and what not to include under the various combat zone regulations. Another issue is that the fact that military families move frequently. This increases the odds that tax documents will wind up in the wrong place. On top of that, there is also the reality that troops are too busy on the battlefield or otherwise occupied in a hospital bed recovering from wounds to keep on top of IRS notification letters warning them about a possible delinquency.

DISASTROUS FOR FAMILIES

Because the IRS is allowed to seize part of a service member's paycheck until the tax obligation is paid off, this problem has proved to be disastrous for some military families. In a recent published report, Navy Lt. Cmdr. Steven Millard said that he got into tax trouble a few years ago because of back-to-back deployments and family moves. It took two years to clear up a post-deployment “late filing,” which had triggered an “insanity of fines and interest,” he said. I don't know about you, but when I see someone in uniform, I say, “Thank you,” shake their hand and wish them and their families well. In an effort to simplify these tax issues and to let our servicemen and women know how much we appreciate what they do, I have a proposal. Let Congress pass the one-page, no pork, nonpartisan “No Tax for Active-Duty Armed Forces Members” law, under which soldiers, sailors, airmen or marines deployed overseas receive their military pay and benefits tax-free until they return home. Active-duty troops fighting overseas face danger each day. They risk their lives so we can go about our everyday lives in peace and security. They deserve our deepest gratitude, not nasty notes from the IRS.

Latest News

AI is gaining traction with buy-side equity traders and may be an unstoppable force
AI is gaining traction with buy-side equity traders and may be an unstoppable force

Use of the technology is growing and asset managers see transformative benefits.

One fifth of Americans are expecting an inheritance but are too many relying on it?
One fifth of Americans are expecting an inheritance but are too many relying on it?

Research reveals expectation could be replaced by disappointment.

Farther debuts AI investment proposal tool for advisors to win clients
Farther debuts AI investment proposal tool for advisors to win clients

"Im glad to see that from a regulatory perspective, we're going to get the ability to show we're responsible [...] we'll have a little bit more freedom to innovate," Farther co-founder Brad Genser told InvestmentNews.

Barred ex-Merrill Lynch advisor arrested in alleged $2.6M theft of former Miami Dolphin Pro Bowler
Barred ex-Merrill Lynch advisor arrested in alleged $2.6M theft of former Miami Dolphin Pro Bowler

Former advisor Isaiah Williams allegedly used the stolen funds from ex-Dolphins defensive safety Reshad Jones for numerous personal expenses, according to police and court records.

Are you optimally efficient?
Are you optimally efficient?

Taking a systematic approach to three key practice areas can help advisors gain confidence, get back time, and increase their opportunities.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.