Community Property

The pay you earn as a member of the Armed Forces may be subject to community property laws depending on your marital status, your domicile, and the nature of the payment. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Marital status.   Community property rules apply to married persons whose domicile during the tax year was in a community property state. The rules may affect your tax liability if you file separate returns or are divorced during the year.

Domicile.   Your domicile is the permanent legal home you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. It is not always where you presently live.

Nature of the payment.   Active duty military pay is subject to community property laws. Armed Forces retired or retainer pay may be subject to community property laws.

For more information on community property laws, get Publication 555, Community Property.

Adjustments to Income

Adjusted gross income is your total income minus certain adjustments. The following two adjustments are of particular interest to members of the Armed Forces.

Individual Retirement Arrangements

For purposes of a deduction for contributions to a traditional individual retirement arrangement (IRA), Armed Forces' members (including reservists on active duty for more than 90 days during the year) are considered to be active participants in an employer-maintained retirement plan.

Generally, you can deduct the lesser of the contributions to your traditional IRA for the year or the general limit (or spousal IRA limit, if applicable). However, if you or your spouse was covered by an employer retirement plan at any time during the year for which contributions were made, you may not be able to deduct all of the contributions. The Form W-2 you or your spouse receives from an employer has a box used to indicate whether you were covered for the year. The Retirement Plan box should have a mark in it if you were covered.

Individuals serving in the U.S. Armed Forces or in support of the U.S. Armed Forces in designated combat zones have additional time to make a qualified retirement contribution to an IRA. For more information on this extension of deadline provision, see Extension of Deadline, later. For more information on IRAs, get Publication 590.

Moving Expenses

To deduct moving expenses, you generally must meet certain time and distance tests. However, if you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you do not have to meet these tests. You can deduct your unreimbursed moving expenses on Form 3903.

Permanent change of station.   A permanent change of station includes:

• A move from your home to your first post of active duty,
• A move from one permanent post of duty to another, and
• A move from your last post of duty to your home or to a nearer point in the United States. The move must occur within one year of ending your active duty or within the period allowed under the Joint Travel Regulations.

Spouse and dependents.   If a member of the Armed Forces deserts, is imprisoned, or dies, a permanent change of station for the spouse or dependent includes a move to:

• The place of enlistment,
• The member's, spouse's, or dependent's home of record, or
• A nearer point in the United States.

If the military moves you, your spouse, and your dependents to or from separate locations, the moves are treated as a single move to your new main job location.

Services or reimbursements provided by the government.   Do not include in your income the value of moving and storage services provided by the government because of a permanent change of station. Similarly, do not include in income amounts received as dislocation allowance, temporary lodging expense, temporary lodging allowance, or move-in housing allowance. Generally, if the total reimbursements or allowances that you receive from the government because of the move are more than your actual moving expenses, the excess is included in your wages on Form W-2. However, if any reimbursements or allowances (other than dislocation, temporary lodging, temporary lodging expense, or move-in housing allowances) exceed the cost of moving and the excess is not included in your Form W-2, the excess still must be included in gross income on line 7 of Form 1040.

Use Form 3903 to deduct qualified expenses that exceed your reimbursements and allowances (including dislocation, temporary lodging, temporary lodging expense, or move-in housing allowances that are excluded from gross income).

If you must relocate and your spouse and dependents move to or from a different location, do not include in income reimbursements, allowances, or the value of moving and storage services provided by the government to move you and your spouse and dependents to and from the separate locations.

Do not deduct any expenses for moving services that were provided by the government, or that were reimbursed to you, that you did not include in income.

Deductible moving expenses.   If you meet the requirements discussed earlier, you can deduct the reasonable unreimbursed expenses that are incurred by you and members of your household.

You can deduct expenses (if not reimbursed or furnished in kind) for the following items.

• Moving household goods and personal effects, including expenses for hauling a trailer, packing, crating, in-transit storage, and insurance. You cannot deduct expenses for moving furniture or other goods you bought on the way from the old home to the new home.
• Travel and lodging expenses from the old home to the new home, including automobile expenses (either actual expenses or 13 cents per mile) and air fare. You cannot deduct any expenses for meals. You cannot deduct the cost of unnecessary side trips or lavish and extravagant lodging.

You can include only the cost of storing and insuring household goods and personal effects within any period of 30 consecutive days after the day these goods and effects are moved from your former home and before they are delivered to your new home.

Member of your household.   A member of your household is anyone who has both your former home and your new home as his or her main home. It does not include a tenant or employee unless you can claim that person as a dependent.

Foreign moves.   A foreign move is a move from the United States or its possessions to a foreign country or from one foreign country to another foreign country. It is not a move from a foreign country to the United States or its possessions.

For a foreign move, the deductible moving expenses described earlier are expanded to include the reasonable expenses of:

• Moving your household goods and personal effects to and from storage, and
• Storing these items for part or all of the time the new job location remains your main job location. The new job location must be outside the United States.

Reporting moving expenses.   Figure moving expense deductions on Form 3903. Carry the deduction from Form 3903 to line 28, Form 1040. For more information, get Publication 521 and Form 3903 instructions.

Combat Zone Exclusion

If you are a member of the U.S. Armed Forces who serves in a combat zone (defined later), you can exclude certain pay from your income. You do not have to receive the pay while you are in a combat zone, are hospitalized, or in the same year you served in a combat zone. However, your entitlement to the pay must have fully accrued in a month during which you served in the combat zone or were hospitalized as a result of wounds, disease, or injury incurred while serving in the combat zone. Enlisted personnel, warrant officers, and commissioned warrant officers can exclude the following amounts from their income. (Other officer personnel are discussed later.)

• Active duty pay earned in any month you served in a combat zone.
• Imminent danger/hostile fire pay.
• A reenlistment bonus if the voluntary extension or reenlistment occurs in a month you served in a combat zone.
• Pay for accrued leave earned in any month you served in a combat zone. The Department of Defense must determine that the unused leave was earned during that period.
• Pay received for duties as a member of the Armed Forces in clubs, messes, post and station theaters, and other nonappropriated fund activities. The pay must be earned in a month you served in a combat zone.
• Awards for suggestions, inventions, or scientific achievements you are entitled to because of a submission you made in a month you served in a combat zone.
• Student loan repayments that are attributable to your period of service in a combat zone (provided a full year's service is performed to earn the repayment).

Retirement pay and pensions do not qualify for the combat zone exclusion.

Partial (month) service.   If you serve in a combat zone for one or more days during a particular month, you are entitled to an exclusion for that entire month.

Combat Zone

A combat zone is any area the President of the United States designates by Executive Order as an area in which the U.S. Armed Forces are engaging or have engaged in combat. An area usually becomes a combat zone and ceases to be a combat zone on the dates the President designates by Executive Order.

Afghanistan area.   By Executive Order No. 13239, Afghanistan (and airspace above) was designated as a combat zone beginning September 19, 2001.

The Kosovo area.   By Executive Order No. 13119 and Public Law 106-21, the following locations (including air space above) were designated as a combat zone and a qualified hazardous duty area beginning March 24, 1999.

• Federal Republic of Yugoslavia (Serbia/Montenegro)
• Albania
• The Adriatic Sea
• The Ionian Sea - north of the 39th parallel (including all of the airspace in connection with the Kosovo operation.)

Persian Gulf area.   By Executive Order No. 12744, the following locations (and airspace above) were designated as a combat zone beginning January 17, 1991.

• The Persian Gulf,
• The Red Sea,
• The Gulf of Oman,
• The part of the Arabian Sea that is north of 10 degrees north latitude and west of 68 degrees east longitude,
• The Gulf of Aden, and
• The total land areas of Iraq, Kuwait, Saudi Arabia, Oman, Bahrain, Qatar, and the United Arab Emirates.

Qualified hazardous duty area.    Beginning November 21, 1995, a qualified hazardous duty area in the former Yugoslavia is treated as if it were a combat zone. The qualified hazardous duty area includes:

• Bosnia and Herzegovina,
• Croatia, and
• Macedonia.

Note.   If you satisfy additional requirements, you may be entitled to full combat zone tax benefits. See Qualifying service outside combat zone, later.

Members of the Armed Forces deployed overseas away from their permanent duty station in support of operations in a qualified hazardous duty area, or performing qualifying service outside the qualified hazardous duty area, are treated as if they are in a combat zone solely for the purposes of the extension of deadlines. These personnel are not entitled to other combat zone tax benefits.

Serving in a Combat Zone

Service in a combat zone includes any periods you are absent from duty because of sickness, wounds, or leave. If, as a result of serving in a combat zone, a person becomes a prisoner of war or is missing in action, that person is considered to be serving in the combat zone so long as he or she keeps that status for military pay purposes.

Note.   You are considered to be serving in a combat zone if you are either assigned on official temporary duty to a combat zone or you qualify for hostile fire/imminent danger pay while in a combat zone.

Qualifying service outside combat zone.   Military service outside a combat zone is considered to be performed in a combat zone if:

• The service is in direct support of military operations in the combat zone, and
• The service qualifies you for special military pay for duty subject to hostile fire or imminent danger.

Military pay received for this service will qualify for the combat zone exclusion if the other requirements are met.

Nonqualifying presence in combat zone.   The following military service does not qualify as service in a combat zone.

• Presence in a combat zone while on leave from a duty station located outside the combat zone,
• Passage over or through a combat zone during a trip between 2 points that are outside a combat zone, and
• Presence in a combat zone solely for your personal convenience.

Amount of Exclusion

If you are an enlisted member, warrant officer, or commissioned warrant officer and you serve in a combat zone during any part of a month, all of your military pay for that month is excluded from your income. You also can exclude military pay earned while you are hospitalized as a result of wounds, disease, or injury incurred in the combat zone. The exclusion of your military pay while you are hospitalized does not apply to any month that begins more than 2 years after the end of combat activities in that combat zone. Your hospitalization does not have to be in the combat zone.

If you are a commissioned officer (other than a commissioned warrant officer), you may exclude your pay according to the rules just discussed. However, the amount of your exclusion is limited to the highest rate of enlisted pay (plus imminent danger/hostile fire pay you received) for each month during any part of which you served in a combat zone or were hospitalized as a result of your service there.

You do not need to claim the combat zone exclusion on your tax return because this type of income is excluded normally from your wages. (See Form W-2, below.)

Hospitalized while serving in the combat zone.   If you are hospitalized while serving in the combat zone, the wound, disease, or injury causing the hospitalization will be presumed to have been incurred while serving in the combat zone unless there is clear evidence to the contrary.

Example.   You are hospitalized for a specific disease in a combat zone where you have been serving for 3 weeks, and the disease for which you are hospitalized has an incubation period of 2 to 4 weeks. The disease is presumed to have been incurred while you were serving in the combat zone. On the other hand, if the incubation period of the disease is one year, the disease would not have been incurred while you were serving in the combat zone.

Hospitalized after leaving the combat zone.   In some cases the wound, disease, or injury may have been incurred while you were serving in the combat zone, even though you were not hospitalized until after you left.

Example.   You were hospitalized for a specific disease 3 weeks after you left the combat zone. The incubation period of the disease is from 2 to 4 weeks. The disease is presumed to have been incurred while serving in the combat zone.

Form W-2.   The wages shown in box 1 of your 2001 Form W-2 should not include military pay excluded from your income under the combat zone exclusion provisions. If it does, you will need to get a corrected Form W-2 from your finance office.

You cannot exclude as combat pay any wages shown in box 1 of Form W-2.

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