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You pledged to serve your country for one weekend each month and two weeks each year. As a military reservist, you receive pay for each weekend you serve, prorated for the number of hours in your monthly drill, and based on the Department of Defense’s pay schedules for your rank and time in the service. While serving as a reservist is a patriotic job, it is a job nonetheless, and your earnings from weekend drills are subject to taxation.
Most pay that members of the armed forces receive is considered taxable income by the Internal Revenue Service, including the pay you receive for your monthly drill. Other taxable forms of income for reservists also include bonuses, re-enlistment pay or special pay. In most cases, the Department of Defense withholds the necessary taxes based on your estimated tax rate, but withholdings are only based on estimates. When you file your personal income taxes, you’ll need to report the amount of drill pay you receive alongside any other sources of income, as well as withholding.
When a reservist is called for active duty to serve in a combat zone, his payment and taxation situation changes dramatically. In addition to receiving full pay for his rank and time served, he receives combat pay or hazard pay. Any time a reservist serves in a designated combat zone, even for just a day, all his military earnings for the month are exempt, including any additional earnings received for service outside the combat zone.
If you don’t live in the city or suburban area that surrounds the city in which your unit holds its drill, you can claim drill-related travel expenses. The IRS allows reservists to claim the standard business mileage deduction – 55.5 cents per miles traveled as of 2012 – for travel to and from a drill. Reservists must itemize their deductions rather than claiming the standard deduction to claim this deduction. They must also keep a log of all drill-related travel as they keep it, including the date and odometer reading of each trip as it happens.
If you use your money from the G.I. bill to help pay student loans and the Department of Defense makes the payment automatically, the amount of your loan payment is considered taxable income. Because the Department of Defense makes it as a payment to a lender and not as wages, it doesn’t withhold income taxes on this amount. You’ll need to make quarterly estimated tax payments on this amount, or prepare to pay additional income taxes and possibly penalties on the earnings when you file.
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