Hey guys, my plan after high school is to join the military reserve. I've heard talks about being 'tax exempt' when deployed. Could anyone kindly shed some light on this? I'm curious about what it entails and the criteria, if any, one has to meet to qualify for this exemption. Any insight would be greatly appreciated. Thanks!
In terms of U.S. taxation law, certain military reservists who are deployed may qualify to be exempt from federal income tax on a portion, or sometimes all, of their military pay. This is due to a regulation known as the 'Combat Zone Tax Exclusion'. Simply put, if you serve in a combat zone as an enlisted member or a warrant officer for any time during a particular month, all your military pay received for military service that month is considered tax-excluded income. This income will not be taxed by the federal government.
In this context, 'combat zones' are specified by an Executive Order from the President. They are usually areas where the U.S. military are engaging, or have engaged, in combat. There are also other qualified hazardous duty areas where service members are serving in direct support of military operations which also qualify for combat zone tax benefits.
The tax exclusion is not unlimited for commissioned officers, however. The amount of their exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received.
In regards to your question about qualifications, all you need really is to serve in a recognized combat zone or in direct support of military operations in such areas.
For state income tax, the regulations can vary, and it would be in your best interest to inquire with the appropriate state tax department. Many states follow federal guidelines, but it's always best to check directly with the respective body. It’s also important to remember to seek professional legal or tax advice whenever you're dealing with issues like these, to make sure you’re fully compliant with the laws and regulations.
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