The Internal Revenue Service gives you special treatment in recognition of your service to the country when you're deployed. Deployed soldiers enjoy the opportunity for tax-free income and for special treatment in the calculation of the earned income tax credit. You'll also get extra time to file your return if you need it because of your service.
If you're deployed to a designated combat zone, your combat pay is completely tax-free during any month in which you spend at least one day in the zone. The tax exclusion applies to your combat pay, your Basic Allowance for Housing and your Basic Allowance for Subsistence. If you're injured while deployed in a combat zone, your tax exclusion continues for up to two years while you recuperate. Also, if you re-enlist while you're in a combat zone and are paid a re-enlistment bonus, that bonus will be tax-free.
Earned Income Tax Credit
When the military deploys you to a combat zone and your taxable income drops, you could lose eligibility for the Earned Income Tax Credit. However, you have the opportunity to add your combat pay back into your income just for the purpose of calculating your EITC. In many cases, this can increase the size of your tax refund.
When you're deployed overseas, you could end up being subject to that country's taxes, especially if you have investments there or if you have a spouse that works. The IRS lets you claim the cost of your foreign taxes as a deduction or as a credit against your U.S. taxes. In many cases, you can do a dollar-for-dollar offset so that you aren't double taxed.
If you itemize your deductions, you can claim the same write-offs for your military service that you'd claim for any other job as a part of the unreimbursed employee deduction. You can deduct your out-of-pocket cost for uniforms if you're a reservist or if you're not allowed to wear them when you're off duty. The cost of traveling for work, such as to your post for reserve duty, is also deductible. Bear in mind, though, that you can only deduct work-related expenses that exceed 2 percent of your adjusted gross income, according to the IRS.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.