In a previous post, we discussed some of the tax benefits for military personnel serving in combat zones. In today’s post, we examine other types of tax breaks available to military members in other types of service.
Reduced interest rates
If you come into the military owing the IRS money, any interest in excess of 6 percent is forgiven. This interest cap applies to other types of debt as well—including credit card debt, mortgages or car loans.
Freedom to withdraw from retirement funds
If you serve in the military reserves, you can take money out of your 401(k) or IRA without incurring penalties. This exemption only applies if your active duty:
- Began after September 11, 2001,
- Lasted for at least 180 days and
- Coincided with the date of your retirement plan withdrawal.
Deductible moving and travel expenses
If you are on active duty and you have to move to a different duty station, your moving expenses can be deductible. In addition, if you have to travel more than 100 miles for your service, you can deduct expenses on your return trip that are not reimbursed by the military.
Tax debt waived in the event of death
When a civilian passes away with tax liability, this debt does not disappear. Instead, it transfers to the deceased’s estate, and the IRS can issue levies or liens to collect the money owed to them. However, if a military member passes away while working in a combat zone or while supporting a combat-related mission, the IRS forgives any outstanding tax debt.
There are myriad tax laws affecting military personnel. It’s a good idea to discuss your situation with an experienced tax attorney to ensure you’re making the best use of the military benefits you’ve earned.