How to Get Your Tax Refund After Deployment

Returning from a military deployment involves a unique financial transition, as the tax code includes provisions for service members. These rules, particularly for those in combat zones, can affect filing deadlines, taxable income, and eligibility for certain credits. Understanding these benefits is an important part of managing your finances post-deployment.

Automatic Tax Filing and Payment Extensions

Service members in a combat zone or designated hazardous duty area qualify for an automatic extension to file federal tax returns and pay any taxes owed. The Internal Revenue Service (IRS) provides this relief automatically, so you do not need to file any special forms to request it. This allows personnel to focus on their mission without the pressure of tax deadlines.

The deadline is extended for at least 180 days after the service member’s last day in the combat zone. In addition to this 180-day period, the extension includes the number of days that were remaining in the tax filing season when you entered the combat zone. For example, if you deployed to a combat zone on March 1st, you would have had about 45 days left until the typical April 15th deadline; those 45 days are added to the 180 days after you return.

This comprehensive extension covers more than just filing your annual Form 1040. It also applies to making payments on any taxes due and claiming a refund for overpayment. If you are hospitalized for an injury sustained while serving in a combat zone, the 180-day extension period begins after you are released from the hospital.

The Combat Zone Tax Exclusion

The Combat Zone Tax Exclusion allows you to exclude pay earned while serving in a designated combat zone from your federal taxable income. This is a full exclusion, not a deduction, meaning the income is not reported as part of your gross income. The exclusion applies for any month, or part of a month, you served in a combat zone, which can substantially lower your tax liability.

The IRS maintains a list of locations designated as combat zones by presidential executive order. You should consult the current list on the IRS website to confirm if your service area qualifies. Service in a hazardous duty area may also qualify for these tax benefits.

Your non-taxable combat pay is reported on your Form W-2 from the Defense Finance and Accounting Service (DFAS) in Box 12 with the code “Q”. This amount is already excluded from the taxable wages in Box 1. For enlisted members and warrant officers, all military pay for the month is excluded. For commissioned officers, the exclusion is capped at the highest rate of enlisted pay plus any imminent danger or hostile fire pay.

This exclusion covers basic pay as well as other compensation received in the combat zone, like reenlistment bonuses and special pays. Because this income is tax-free, it does not count toward your federal tax bracket. This can keep your other taxable income in a lower bracket, resulting in tax savings.

Impact on Tax Credits and Retirement Contributions

Although combat pay is non-taxable, you have the option to include it as “earned income” when calculating certain tax credits. This can be beneficial for claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC). Including your non-taxable combat pay could increase the amount of credit you receive, leading to a larger refund.

This election is optional, so you should calculate your taxes both ways to see which is more advantageous. The decision to include combat pay for credit calculations does not make the pay taxable. This provision ensures service members are not penalized for having non-taxable income when qualifying for credits.

Your non-taxable combat pay is considered compensation for making contributions to an Individual Retirement Arrangement (IRA) or a Roth IRA. This allows you to continue saving for retirement with your deployment earnings. When you contribute tax-exempt combat pay to a Roth Thrift Savings Plan (TSP), those contributions and their earnings are tax-free upon withdrawal in retirement.

State Income Tax Rules for Military Members

State income tax laws for military personnel are separate from federal rules and vary by state. Your state tax liability is determined by your state of legal residence, or “domicile,” not where you are stationed. You establish your domicile through actions like registering to vote or holding a driver’s license in that state.

The treatment of military pay differs widely. Some states exempt all military pay from income tax, regardless of where it was earned. Others may only exempt pay earned while in a combat zone, and a third group of states taxes all military pay with no special exemptions.

You should check the specific tax laws of your state of legal residence. The Military Spouses Residency Relief Act (MSRRA) allows a military spouse to maintain the same state of legal residence as the service member when moving on military orders. Consult your state’s department of revenue website or a qualified tax professional for accurate information.

How to Claim Deployment-Related Tax Benefits

You can use free resources designed for service members to claim these tax benefits. Military OneSource offers MilTax, a suite of free services that includes tax preparation software and access to consultants familiar with military situations. These resources can guide you through claiming your combat pay exclusion and calculating eligible credits.

If you already filed a return for a deployment year without claiming these benefits, you can file an amended return for a refund. Use IRS Form 1040-X, Amended U.S. Individual Income Tax Return, to correct your income and tax liability. You will need to explain the reason for the changes, such as applying the combat zone exclusion.

When filing either an original or amended return, you can set up direct deposit with the IRS to receive your refund faster. You will need to provide your bank account and routing number. This sends any refund owed directly to your account, avoiding the delay of a paper check.