Prior to 1986, National
Guard members 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
National Guard members. 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 National Guard 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 National Guard duty.
National Guard members whose civilian employers pay them the difference
between their National Guard 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 National Guard member’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 National Guard members 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.
