Prior to 1986,
Reservists could deduct 100 percent of their military travel expenses. The
Tax Reform Act of 1986 changed policy to allow members to deduct only travel
expenses that exceeded 2 percent of their adjusted gross income. There are
two legislative bills that address this problem. Both H.R. 3915 and H.R.
4328 restore the pre-1986 tax status to members participating in the Reserves,
allowing them to deduct 100 percent of their military travel expenses from
their individual income taxes. These bills will be reintroduced in the 107th
Congress, convened in January. Until legislation is passed and a bill is
signed into law, the deduction allowed remains at amounts that exceed 2
percent of adjusted gross income.
This section briefly outlines some of various tax benefits that apply to
Reservists. If you have any questions about your specific tax situation,
you can also consult the Military.com
Tax Guide, the IRS or a tax professional.
Members of the Reserve receive a W-2 Form each year showing the total amount
of taxable wages for the previous year, total federal and state income tax
withheld, and total Social Security taxes withheld from pay received for
Reserve duty.
Reservists whose civilian employers pay them the difference between their
Reserve pay for annual active duty for training and their civilian pay for
that period may end up being taxed twice. The civilian employer may report
as taxable income the full salary for the two-week period without reducing
the amount for military reimbursement, and DFAS will deduct taxes from the
Reservist’s military pay as well. This can be corrected either by obtaining
a corrected W-2 form or reducing the amount of income reported in one’s
tax return and including a narrative explanation of the situation.
All basic pay (excluding pay received as a stipend for participation in
the Armed Forces Health Professions Scholarship Program) and hazardous duty
or incentive pay, is taxable. Allowances for BAH and BAS, uniform allowances,
meal allowances, and items furnished in kind, such as rations, transportation,
and accommodations, are not taxable.
Some Reservists are entitled to a credit on their tax return for excess
Social Security tax withheld from their military pay. During 2000, Social
Security taxes were withheld from an individual’s first $76,200 of
income at a rate of 7.65 percent up to a maximum of $5,829.30. During 2001,
the percentage rate remains at 7.65 percent, and the base is increased to
$80,400 up to a maximum of $6,150.60. (Note: There is no wage base limitation
for Medicare tax; all covered wages are subject to 1.45 percent Medicare
tax.) If an individual’s income from all sources was greater than $76,200
in 2000, then he or she is entitled to claim the excess amount above the
maximum FICA, as a credit against income tax.
