Overview
Military families face tax rules that differ from those for civilians. These differences can reduce taxable income, extend deadlines, or create additional credits — but they also create documentation and residency questions that, if handled incorrectly, can cost money. In my work advising service members and military spouses, the biggest wins come from tracking orders, documenting moves, and understanding residency rules before the tax year ends. (See IRS, Armed Forces’ Tax Guide (Publication 3) for authoritative detail.)
Filing status, state residency, and spousal rules
- Filing status: As with civilians, spouses may file jointly or separately. Joint filing usually produces the lowest tax bill, but choose the option that reflects your legal situation and best protects credits and deductions.
- State residency: Service members frequently keep a legal home state (domicile) while stationed elsewhere. The Servicemembers Civil Relief Act (SCRA) and state rules let many service members keep their original state residence for tax purposes; that matters for state income tax obligations (Military OneSource and IRS Military Issues outline these rules). Always record your declared home state and any state income tax withholding.
Why this matters: a change in state residency can change your state tax obligations for wages, retirement pay, and other income. If you plan to claim a state of legal residence, keep documents such as voter registration, driver’s license, and leave-and-earnings statements showing your intent.
Combat zone pay and earned income tax credit (EITC)
- Combat zone exclusion: Pay for service performed in designated combat zones or qualified hazardous duty areas is often excluded from federal gross income. Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS) are typically nontaxable as well (IRS Pub. 3).
- EITC treatment: Combat pay can be excluded from taxable income yet still be treated as earned income for the Earned Income Tax Credit (EITC) if the service member elects to include it on the return. That choice can increase the EITC and the refund, but it also raises reported income for other calculations. The choice is made on the tax return and should be evaluated each year.
Example: In my practice I’ve seen deployed service members elect to include combat pay when it increased their EITC more than the tax saved by excluding it.
Moving expenses for PCS (permanent change of station)
Active-duty service members who move because of a PCS order can deduct qualified unreimbursed moving expenses using Form 3903. Since the 2018 tax change suspended moving expense deductions for most taxpayers, the military exception remains one of the few common scenarios where moving expenses are deductible (IRS guidance on moving and Form 3903).
What counts: shipping household goods, travel (including mileage) between old and new homes, and lodging while en route. Keep receipts, mileage records, orders, and reimbursement statements.
For deeper detail see our article on Moving Expenses Deduction (for military) for step-by-step record-keeping and common pitfalls: Moving Expenses Deduction (for military).
Education, scholarships, and tax credits
- GI Bill benefits: Generally tax-free when used for tuition and required fees (IRS Publication 970).
- Education credits: The American Opportunity Credit and Lifetime Learning Credit may apply to spouses or dependents when education expenses are paid using taxable income. Scholarships and tax-free military education benefits reduce the eligible amount for credits.
- MyCAA and other grants: Many military spouse scholarships are non-taxable when used for qualifying education costs; check program terms and IRS guidance.
Extensions and filing/payment relief tied to military service
The IRS provides special filing and payment relief to service members in combat zones and certain contingency operations. Relief can include extra time to file and pay taxes without interest or penalties and can extend typical deadlines by months after service in the combat zone ends. The exact amount of relief varies by designation and year; consult the IRS Military Issues page for current relief announcements.
Professional tip: If you are deployed close to April 15 (or the filing deadline), request an extension or note the combat zone status so the IRS can apply the proper relief. Keep copies of deployment orders and any official documents that show service dates.
Common tax credits and benefits relevant to military families
- Child Tax Credit and Additional Child Tax Credit (subject to income limits)
- Earned Income Tax Credit (special combat pay election option)
- Dependent Care Credit (if paying for child care while working or training)
- Saver’s Credit (for eligible low- or moderate-income military families who contribute to retirement accounts)
Each credit has eligibility rules and income phaseouts. Use IRS worksheets and publications or consult a tax professional to confirm eligibility.
Documentation checklist (practical and actionable)
- Copies of PCS/temporary duty (TDY)/deployment orders
- Leave and Earnings Statement (LES) for the tax year
- W-2s showing taxable wages (note that combat pay exclusions may not appear on the W-2)
- Receipts and mileage logs for moving expenses
- Records of education payments, scholarships, and Form 1098-T if filed by the school
- State residency documentation (voter registration, driver’s license, property records)
In my experience, clients who maintain a simple folder with these documents during the year avoid rushed searches and missed deductions later.
Common mistakes and how to avoid them
- Missing combat-zone benefits: Failing to claim the combat pay exclusion or mishandling the EITC combat pay election can lead to overpayment or missed credits.
- Overlooking PCS deductions: Not filing Form 3903, or missing mileage and lodging receipts, loses a deductible expense.
- State residency errors: Changing licenses or voter registration without understanding tax consequences can create unintended multi-state tax filings.
- Poor documentation: Unsupported moving expense claims or missing leave orders create audit risk. Keep paper or secure scanned copies.
Real-world examples (short cases)
- PCS move: A family relocated on PCS orders and tracked mileage, shipping, and hotel costs; by filing Form 3903 they reduced taxable income and recovered several thousand dollars in qualified expenses.
- Combat pay and EITC: A deployed enlisted member chose to include combat pay in earned income for EITC calculations and increased the credit beyond the tax saved by exclusion.
Who should get professional help?
Consider a tax professional when: you have complex state residency issues, multiple state tax returns, significant unreimbursed moving costs, or mixed civilian/military income situations. A CPA or tax attorney who understands military tax law can prevent costly mistakes and identify less obvious credits.
For additional FinHelp reading on related topics, see “Penalty Relief for Military Personnel” and our guide on state protections for service members: Penalty Relief for Military Personnel and State-Specific Protections for Military Service Members on Loans.
Frequently Asked Questions
Q: Do deployed service members still have to file a state income tax return?
A: It depends on where you are domiciled. Many service members retain their home state and file there. If you earn income in another state, separate rules may apply. Keep orders and residency documentation to support your claim.
Q: Can a spouse file taxes for a deployed service member?
A: Yes; spouses can prepare and file returns on behalf of deployed service members if they have proper authorization and documentation.
Q: How do I claim moving expenses from a PCS move?
A: Use Form 3903, keep receipts and mileage logs, and exclude any reimbursed amounts. The form instructions and IRS Publication 3 explain qualifying expenses.
Authoritative resources and links
- IRS, Armed Forces’ Tax Guide — Publication 3 (current). (See IRS.gov: Military and tax resources.)
- IRS pages on combat pay and filing relief: IRS, Military Issues (irs.gov/filing/military-issues).
- Military OneSource: Military Tax Tips and state residency guidance.
Professional disclaimer
This article is educational and not personal tax advice. Tax law and IRS guidance change; check current IRS publications or consult a CPA or military legal assistance tax counselor for decisions specific to your situation.
Final practical checklist (before you file)
- Gather LES, orders, W-2s, and receipts.
- Decide whether to elect combat pay inclusion for EITC.
- Prepare Form 3903 if PCS moving expenses qualify.
- Confirm state residency and whether you must file other states.
- If deployed, check available IRS filing/payment relief and document service dates.
Staying organized throughout the year is the best tax strategy for military families. When in doubt, ask a tax professional who understands military rules — the right paperwork often turns complexity into saved tax dollars.
