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Legal Residence

(Note: The below article is from the Aug 97 edition of Navy "All Hands" Magazine. While it is written with Navy personnel in mind, for the most part, the information is applicable for members of all of the services.


Certain responsibilities come with the rights of citizenship; paying your taxes is one of your most important responsibilities.

You are obligated to file federal, state and local income tax returns as are all residents and citizens of the United States. Like other federal employees, you cannot exclude amounts received from any agency of the United States for services rendered in a foreign country or within U.S. possessions. This means no matter where you are, your basic military pay is taxable by the federal government and your own state and local governments. Special tax breaks apply for military compensation earned in a combat zone or a qualified hazardous duty area (e.g., the Arabian Gulf, Bosnia). Contact your local Volunteer Income Tax Assistance (VITA) center or a legal assistance office for more information.

If your gross income is above certain established levels, you are required to file a federal income tax return.

As with most requirements, there are exceptions, so you should check with the Internal Revenue Service (IRS) or with state/local taxing authorities. You can also contact your VITA tax center or your legal assistance office if you are not sure whether you must file.

Navy personnel (both military and civilian) are often affected by establishing residences overseas. For complete information on how living abroad affects your taxes, consult IRS Publication 54. If you actually reside and have your "tax home" outside the 50 states and Puerto Rico on April 15, you are allowed an automatic extension for filing until June 15, but you must explain why you took advantage of the extension and pay interest on the unpaid tax, if any, from the original due date of April 15.

The extension also applies to military personnel assigned or deployed outside the United States and Puerto Rico. The assignment, which may be either PCS or TAD, must include all of April 15.

If you start or end an overseas assignment April 15, you are not eligible for the extension. If you are on an overseas assignment April 15, you qualify for the extension even if you are on leave in the United States April 15.

If you are living outside the United States you can still receive a two-month extension, in addition to the automatic two-month extension for filing (for a total of four months), by sending in an IRS Form 4868 by June 15, along with the full amount of unpaid tax liability.

All taxpayers, whether or not assigned or deployed OCONUS, can obtain an automatic four-month extension (until August 15) of the time to file a return. You must file Form 4868 by April 15, make an accurate estimate of your tax. If you find you cannot pay the full amount due with Form 4868, you can still get an extension but will owe interest on the unpaid amount.

Your tax paying responsibilities don't stop at the federal level. Depending upon where you call home, you may be liable for state or local tax (city or county).

The Soldiers' and Sailors' Civil Relief Act protects your military pay against taxation by a state in which you are not a legal resident but are residing in by virtue of military orders. Income derived from a business, rental property or civilian employment can be taxed by the state in which it is earned.

Your spouse or children are not protected by the act and they may be subject to income tax by two or more states. The states generally try to prevent double taxation by giving taxpayers a credit on their home state tax return for taxes paid to another state. Your local legal assistance office can help explain the applicable tax laws if you are in doubt.

Federal law requires withholding for state income taxes upon the state's request (withholding is not currently permitted for Puerto Rico). All income-taxing states are making a concerted effort to locate delinquent taxpayers and are imposing penalties and interest for failure to file and pay appropriate state taxes.

Although several states impose no personal income tax, or exempt military pay, you may still have to file a return for record purposes even though you may not owe tax. Filing a return also shows intent to retain legal residence in that state, thus protecting yourself against claims by other states.

Members from cities and counties which impose income taxes should correspond directly with the authorities of those jurisdictions to find out if there is a tax liability.
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