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Adjustments to Income and Itemized Deductions: Members of the Armed Forces

As a taxpayer, you may be able to subtract certain amounts from your gross income to arrive at your adjusted gross income (AGI). Further, you may then subtract from your AGI the greater of either your standard deduction (which is based on your filing status) or the total of your itemized deductions. As a member of the U.S. Armed Forces, you may find the following considerations of particular interest to you.

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Taxable vs. Nontaxable Income: Members of the Armed Forces

If you’re a member of the U.S. Armed Forces on active duty, you’re generally not required to pay federal income tax on all the income you receive. What’s taxed and what’s not taxed depends on what form the income takes and, in some cases, where the income is earned. Generally, basic pay, special pay, and bonuses are taxable (unless they’ve been earned for service in a combat zone), while in-kind benefits, reimbursements, and allowances are not taxable.

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Organizing Important Records and Documents

A record-keeping system is a systematic approach to retaining and filing documents in a way that makes them easy to find when needed, even if it’s several years later. Record-keeping systems range from simple to elaborate and from basic to comprehensive. The ideal system is designed to fit your personal and family situation and lifestyle.

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Nontaxable combat pay election

You can elect to include your nontaxable combat pay in earned income for the earned income credit. If you make the election, you must include in earned income all nontaxable combat pay you received. If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election.


The amount of your nontaxable combat pay should be shown on your Form W-2 in box 12 with code Q. Electing to include nontaxable combat pay in earned income may increase or decrease your EIC.

Figure the credit with and without your nontaxable combat pay before making the election. Whether the election increases or decreases your EIC depends on your total earned income, filing status, and number of qualifying children.


For more information on how AFBN can help you, send us a message below or contact your nearest service center location.

Ready for next lesson? Learn more about Earned Income Credits

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