One of the tax topics I specialize in at my practice is military affairs. I know that many of you have large military populations, including active duty, reserve, national guardsmen, retirees, and veterans. Over the next week I am going to provide you with some tips to finding all the nuggets of gold in the military income reporting documents.
How many of you have the IRS Pub 3, the Armed Forces Tax Guide? If you don’t, then you need to get one here. It is essential reading for anyone who handles clients affiliated with the military. The other two places with all the basic information needed to complete military tax returns are the MyPay and Veterans Administration websites. They are listed in my Library here, under the document Websites/Links of Interest: The Military Taxpayer.
We will start with the Military Leave and Earnings Statement or as it is better known, the LES. This is the military version of a paycheck stub.
Home Of Record and Spouses
Let’s start with one of the most important items on the form, the Home of Record (HOR). The Home of Record determines the state treatment of the taxpayer and spouse’s income. The military member’s Home of Record will determine if they need to file a state return. Many states do not tax the pay of a military member if they are not assigned to that state. Some only tax a portion of their income and some have no exemption at all. No state is allowed to tax the military member’s active duty wages if they are not a legal resident of the state they are assigned in for that tour of duty
Going back to military spouses, on 11 Nov 2009, President Obama signed into law the Military Spouses Residency Relief Act with an effective date of 1 Jan 2009. This law makes the double taxation of a Military Spouse’s earned income illegal. In the past Military Spouses were paying taxes on income earned in the state they were assigned with their active military member and in the home state as well. This act effectively made the income of a Military Spouse non-taxable in the state of assignment, assuming the spouse is only in that state because of military orders for the active spouse.
Tomorrow we are going to review the way to rev up your clients itemized deductions using the military W2 and LES.