If you are a member of the United States Army Reserves, you probably spend one weekend per month and two weeks in the summer training and performing Army-related duties. However, you may have been called to active duty, either to a combat zone or to a base to provide support. In both cases, you qualify for several reservist-specific tax benefits and deductions. Those deductions increase if you are called to active duty.
If you travel more than 100 miles from your home to your Army Reserve training exercises or meetings, you can deduct all of your travel-related expenses. For most employees, the requirement is non-reimbursed business-related travel, meal and entertainment expenses must meet the two percent of adjusted gross income hurdle in order for you to deduct it. However, as a reservist, you can take the travel-related deduction as a top line deduction. That means that you include the deduction on a line above your AGI, so it actually reduces your AGI. Travel includes 100 percent of airfare, hotel, parking, taxis and car rental costs. You can only deduct 50 percent of your meal costs.
For non-travel related business expenses you incur for which the Army does not reimburse you, you must itemize them to obtain a tax deduction. In addition, only that portion of your non-reimbursed business expenses that exceeds the two percent of AGI will count.
If you are called to active duty, you qualify for additional tax benefits and deductions. Your employer may continue to pay you the differential between what the Army pays you and what you made before you were called up. That pay is called military differential pay. Any military pay differential you receive is not subject to FICA or income tax withholding. Your employer should therefore send you a 1099-MISC for this income, not a W-2. Although your employer will not assess income taxes, you must still include the income as part of your taxable income.
If you do not receive a pay differential or operated a small business before being called to active duty, you may have difficulty paying the tax bill on last year’s income with this year’s income. If that occurs, as an active duty reservist, you can apply for a tax deferral. However, you must have received a tax due notice from the Internal Revenue Service or have an installment agreement in place to qualify. You must specify on the application how your military service severely restricted your ability to pay.
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