You’ve heard politicians talking about tax reform over the last few months, and you may have seen some results in your paycheck from the policies signed into law in December.
But right now, you need to focus on filing those taxes for 2017. For the most part, the recent reforms don’t affect 2017 returns being filed this spring, but there’s at least one exception for service members who’ve spent some time in the Sinai.
Some details on that change and others you need to know before filing your 2017 taxes:
Troops serving in the Sinai Peninsula qualify for the combat tax exclusion as a result of December’s tax law. That means savings for those service members on their 2017 taxes, but not just them — any troops who served there going back to June 2015 will merit the exclusion for their time in the area.
Those troops will receive amended tax forms, IRS Form W-2C, showing they qualify for the combat tax exclusion, which will allow them to file an amended tax return to get refunds for those years.
Under tax law, troops serving in designated combat zones can exempt active-duty pay and other specialty pays from the annual income calculations, which can amount to a significant drop in income taxes.
The tax reform law passed in December allows those who are receiving or have received imminent danger pay or hostile fire pay while serving in the Sinai dating back to June 9, 2015, to qualify for the refund.
Officials estimate nearly 3,000 troops will be eligible for the refund, since about 900 per year have rotated in and out of the Sinai since 2015, said Army Lt. Col. David Dulaney, executive director of the Armed Forces Tax Council.
These savings could have a ripple effect on those previous tax returns; for example, see the section below on Earned Income Tax Credit.
More than 133,000 veterans will get a letter from Defense Department officials notifying them that they may be eligible for a refund of federal taxes they paid on disability severance pay dating back to 1991.
The taxes shouldn’t have been collected in the first place. These refunds, which are the result of a law passed in 2016, apply to veterans who received this pay dating back to Jan. 17, 1991, with taxes withheld, and who also qualified for disability from the Veterans Affairs department.
Of the 300,000 veterans who received the disability severance payment, DoD has identified about 133,000 who may qualify for refunds, Dulaney said.
Under federal law, any service member who suffers a combat-related injury and is separated from the military receives a one-time, lump-sum disability severance payment based on their rank and years of service. Although the payout was supposed to be tax-free, DoD routinely took taxes out of the severance pay, according to advocacy groups.
Under the 2016 Combat Injured Veterans Tax Fairness Act that went into effect in 2017, DoD was required to identify the veterans whose benefits were previously improperly taxed. The notification letter will include information about the amount that was improperly taxed, and instructions for filing an amended tax return to get the refund.
If you’re claiming the Earned Income Tax Credit and expect to get a refund, your refund may take a couple of weeks longer.
The Internal Revenue Service has more stringent requirements in checking out these claims, in order to combat fraud. With this credit, workers may get money back even if they owe no tax. The IRS urges workers who earned $53,930 or less in 2017 to check to see if they qualify; if that’s you, check here.
“A lot of our military members are eligible for the EITC even if they’ve been on deployment” to designated combat zones and their pay is exempt from taxes, Dulaney said. Normally service members don’t have to report their nontaxable pay, such as combat pay.
“It’s a nuance,” he said. “You can elect to have your [nontaxable income] income included for tax purposes so you can get the EITC. Otherwise, if in a combat-deployed environment and eligible for combat-zone tax exclusion, your income wouldn’t be reported to the IRS so you wouldn’t be eligible for the EITC. So, you can elect to have your income included for purposes of EITC.”
KNOW YOUR DEADLINE
Taxes must be filed on or before April 17. Filers can get an automatic extension until June 15 if they’re outside the continental U.S., but you still have to pay the taxes by April 17.
“That doesn’t affect a lot of our military members, because they usually receive a refund,” Dulaney said. “But if you owe any tax, you have to pay by April 17, otherwise you’ll have a penalty and interest will accrue for late payment of tax.”
There are additional deadline extensions available for those serving in combat zones.
Karen has covered military families, quality of life and consumer issues for Military Times for more than 30 years, and is co-author of a chapter on media coverage of military families in the book "A Battle Plan for Supporting Military Families." She previously worked for newspapers in Guam, Norfolk, Jacksonville, Fla., and Athens, Ga.