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Word of caution for current combat vets

Discussion in 'Fred's House of Pancakes' started by MarinJohn, Jul 5, 2006.

  1. MarinJohn

    MarinJohn Senior Member

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    Part of my financial services business includes income tax perparation. I have a couple of currently deployed service people as clients. For 2 years running now, Armed Services Payroll has screwed up my client's W-2's. FYI, combat pay is not taxed. That is to say, it is excludable from taxable income. ***

    Most people never check their W-2 against their pay stubs and just assume the W-2 as issued is correct. However, one of my Vets is very exacting with his finances and does keep track of his taxable and nontaxable pay. For 2 years running now his W-2 has been incorrect as issued. He has had to get them amended both years to subtract combat pay form the bulk of his income.

    I am writing this thread as a caution to all combat Vets that you may be able to save tax dollars if you also keep track of your income, both normally taxed income as well as non-taxable combat pay. It is entirely possible Armed Services Payroll is not getting your W-2 correct and is lumping your combat pay in with your other (taxable) income, thereby making you pay more income tax than you are legally liable to pay.

    I honor combat vets greatly and hope there have not been screw ups on your personal W-2's, but feel it could be worth a few hundred dollars to you to keep track as explained above.

    ***there are limits and exceptions. This is a GENERAL rule.

    I thank you for your service and pray for your safety.
     
    #1 MarinJohn, Jul 5, 2006
  2. Sufferin' Prius Envy

    Sufferin' Prius Envy Platinum Member

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    <div class='quotetop'>QUOTE(MarinJohn @ Jul 5 2006, 11:16 AM) [snapback]281533[/snapback]</div>
    Yes, there are many IRS rules. :blink:
    There are many limits, exceptions and other benefits too. It makes sense for soldiers – especially ones serving in combat zones - to have a tax professional advise them all the tax benefits afforded to them . . . not just at tax time, but beforehand, so they have the chance to take full advantage.

    A big one is with the sale of a home: “You can choose to have the 5-year test period for ownership and use suspended during any period you or your spouse serve on qualified official extended duty as a member of the Armed Forces.â€

    Also big on the list of missed tax benefits is pay for leave time earned while serving in a combat zone. Say a soldier is in a combat zone for a year and earns 30 days leave. They can also sell back that 30 day for a full months pay, tax free. This happens often with soldiers who leave the military after return from combat duty and go on what is refered to as Terminal Leave. For instance, when I left the military, I had 70 days of vacation time coming to me. I took ten days Terminal Leave and sold back 60 days (the max allowed) . It wasn't tax free since it wasn't earned in a combat zone.
    “Pay for accrued leave earned in any month you served in a combat zone. The Department of Defense must determine that the unused leave was earned during that period.â€
    http://www.irs.gov/publications/p3/ar02.html#d0e1120
     
    #2 Sufferin' Prius Envy, Jul 6, 2006
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