Claim for Death Gratuity Refunds
In 2003, the death gratuity paid to a survivor of a member of the Armed Forces who died after September 10, 2001, was increased to $12,000 and was made nontaxable. Previously, the death gratuity was $6,000 and only $3,000 of it was non-taxable. So, you may be able to claim a refund if you paid tax on a death gratuity you received due to the death of a member of the Armed Forces after September 10, 2001. If you are entitled to a refund, complete and file Form 1040X, Amended U.S. Individual Income Tax Return. At the top of Form 1040X, write “Military Family Tax Relief Act” in red. Generally, you must file a claim for credit or refund within 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later.
Military Base Realignment and Closure Benefit
Payments made under the Homeowners Assistance Program (HAP) after November 11, 2003, generally are excluded from income. However, the excludable amount cannot be more than the following limit:
- 95% of the fair market value of the property for which the payments were made, as determined by the Secretary of Defense before public announcement of intent to close all or part of the military base or installation, minus
- The fair market value of the property as determined by the Secretary of Defense at the time of sale.
Foreign Source Income
If you are a U.S. citizen with income from sources outside the United States (foreign income), you must report all of that income on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form W–2, Wage and Tax Statement, or a Form 1099. This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties).
Certain taxpayers can exclude income earned in foreign countries. For 2003, this exclusion amount is $80,000. However, the foreign earned income exclusion does not apply to the wages and salaries of military and civilian employees of the U.S. Government. Employees of the U.S. Government include those who work at Armed Forces post exchanges, officers’ and enlisted personnel clubs, and embassy commissaries, and similar personnel paid from nonappropriated funds. Other foreign income earned by military personnel or their spouses may be eligible for the foreign earned income exclusion. For more information on the exclusion, get Publication 54.
Residents of American Samoa may be able to exclude income from Guam, American Samoa, and the Northern Mariana Islands. This possession exclusion does not apply to wages and salaries of military and civilian employees of the U.S. Government. If you need information on the possession exclusion, get Publication 570, Tax Guide for Individuals With Income From U.S. Possessions.
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.
Above Information Courtesy of Internal Revenue Service (IRS).
