What troops need to know for this tax season

As the April 15 tax filing deadline looms, troops and their families should be aware of some tax law changes this year that affect them.

The Trump administration’s tax and spending package, known as the One Big Beautiful Bill Act, signed into law last summer, “was significant tax legislation,” Susan Mitchell, executive director of the Armed Forces Tax Council, told Military Times.

“It’s vital that service members understand these tax changes, especially because many deal with the unique circumstances of military life, and there are unique tax rules that apply to them,” she said.

Mitchell highlighted some of the changes that will affect service members and their families.

Trump Accounts

Under the One Big Beautiful Bill Act, beginning July 5, parents of children 18 years old and younger with a Social Security number can open up a Trump Account — a tax-deferred savings account — in their child’s name. For children born between 2025 and 2028, parents can claim a one-time $1,000 seed contribution, provided by the U.S. Treasury, via IRS Form 4547 to establish the investment account.

Contributing to the child’s account is optional, but parents, grandparents, friends and employers can contribute up to a combined total of $5,000 each year to the child’s account. The money can’t be withdrawn before the child turns 18, at which point it can be used for qualified expenses like education, purchasing a first home and starting a business. After 18, the standard rules for traditional individual retirement accounts apply. For more information, visit trumpaccounts.gov.

Other One Big Beautiful Bill Act changes

Many of the changes under OBBBA are in effect for tax years 2025 through 2028. Among them are:

New car loans: Interest is tax deductible on car loans used to buy a new vehicle, as of Jan. 1, 2025. It must be for personal use, and the final assembly must have been in the United States. The maximum annual deduction is $10,000. The deduction phases out for single filers with modified adjusted gross income over $100,000 and joint filers over $200,000.

SALT deductions: The deduction allowed for state and local income taxes, property taxes and real estate taxes has increased from $10,000 to $40,000 for most taxpayers.

Tips tax deductions: Employees and self-employed individuals may deduct qualified tips that are received in occupations listed by the IRS. The maximum annual deduction is $25,000. For those self-employed, the deduction can’t exceed the individual’s net income. The deduction phases out for single filers with modified adjusted gross income over $150,000 and joint filers over $300,000.

Overtime tax deductions: Those who receive qualified overtime compensation may deduct the premium pay that exceeds their regular rate of pay — such as the “half” portion of “time-and-a-half” compensation. The maximum annual deduction is $12,500 for single filers and $25,000 for joint filers. The deduction phases out for taxpayers with modified adjusted gross income over $150,000, and over $300,000 for joint filers.

Deduction for seniors: Those who are age 65 and older may claim an extra deduction of $6,000, or $12,000 for a married couple where both spouses qualify. The deduction phases out for taxpayers with modified AGI over $75,000 and joint filers over $150,000. Your Social Security may be taxable, depending on your total income and filing status.

Standard deductions: The standard deduction has increased to $15,750 for single filers or married couples filing separately; $23,625 for single heads of households with dependents; and $31,500 for married couples filing jointly.

Mortgage interest: The mortgage interest deduction is still capped at $750,000 of indebtedness, and the law makes that permanent. This amount won’t increase in future years because of inflation.

Income from payment apps: The OBBBA repeals the requirement for 1099K forms for people who received a minimum of $600 for goods and services through payment apps like PayPal and Venmo. It raises that threshold to $20,000 in gross pay, and 200 transactions. Mitchell notes it applies to payments for goods and services, not money sent to family members, splitting rent or other personal, nontaxable transactions. But any income will still be taxable; the law just cuts down on the paperwork.

Earned Income Tax Credit: This applies to eligible low- and moderate-income workers. You may qualify for the EITC even if you can’t claim children on your tax return. The credit could reduce the amount of taxes owed or increase your refund. For example, for tax year 2025, a married couple filing jointly with three qualified children, with a maximum adjusted gross income of $68,675 might qualify for a credit of up to $8,046. There are special EITC rules and considerations for military members who receive nontaxable combat pay.

Child and dependent credits: The child tax credit is up to $2,200 per child under age 17 at the end of 2025. It’s phased out for single filers starting at $200,000 and for joint filers at $400,000, so it will apply to most of the military population, Mitchell said. To qualify this year, at least one parent and the child must have a valid Social Security number.

In addition, you and your spouse may be able to claim the child and dependent care credit if you paid for the care of a child under age 13 in order to work or actively look for work. It also applies to care for a disabled dependent. For 2025, the credit is a percentage of the child care expenses up to $3,000 per child with a maximum of $6,000 for two or more qualified dependents. The more you earn, the less the percentage of employment-related child care expenses that are allowed. But the OBBBA enhanced the credit — it now decreases more gradually as income rises. For more information, see IRS Publication 503, Child and Dependent Care Expenses. Those who have the dependent care flexible spending accounts can’t use the same child care expenses for this credit. Any money you contribute to a DCFSA reduces the amount of eligible expenses you can claim for the tax credit on a dollar-for-dollar basis.

Adoption of a child: Taxpayers can receive a credit of up to $17,280 of qualified adoption expenses. The full credit is available for a special-needs adoption. For joint filers with a modified AGI over $259,190, the credit begins to phase out.

But $5,000 of the credit is also refundable, meaning that taxpayers could get back more than what they owe in taxes.

529 plans: Effective Jan. 1, 2026, there have been significant enhancements, Mitchell said, including doubling the annual tax-free withdrawal allowed — from $10,000 to $20,000 — in connection with the beneficiary’s enrollment or attendance at an elementary or secondary school. Also, a lifetime maximum of $35,000 per beneficiary may be moved from a 529 plan to a Roth IRA tax-free and penalty-free.

Also of note

Unreimbursed moving expenses: Active-duty service members can still deduct unreimbursed moving expenses related to permanent-change-of-station moves. While DOD covers many expenses, there still may be some that aren’t fully reimbursed. Use IRS Form 3903 to deduct those. The OBBBA added the intelligence community to those eligible for this deduction.

Reserve component members who stay overnight when they travel more than 100 miles from home can deduct their unreimbursed expenses related to their duty. These expenses are limited to rates federal employees receive, including per diem.

Capital gains taxes: Military homeowners get an extra benefit when it comes to tax exclusions of profit from the sale of their residence. Generally, taxpayers avoid paying capital gains taxes on the sale of their home as long as they’ve owned and used it as their principal residence for at least two of the five years before the sale. The amount of profit that can be excluded from taxes is $250,000 for single taxpayers, and $500,000 for married couples filing jointly.

But military taxpayers can extend that qualifying time period by 10 years, up to 15 years, if they’re assigned to a duty station at least 50 miles from the house for a period of 90 days or more.

Military spouse residency for tax purposes: Under the Military Spouse Residency Relief Act, as amended by the Veterans Auto and Education Improvement Act of 2022, military spouses may elect to use one of three states for purposes of taxation: the military member’s domicile, the spouse’s domicile or the permanent duty station of the service member, regardless of which state where they currently reside. Additional info is available at militaryonesource.mil.

Filing taxes

Troops stationed outside the U.S. and Puerto Rico can qualify for an automatic extension to file and pay taxes until June 15, but will have to pay interest on any taxes not paid by the regular due date. Those overseas, as well as those in the U.S., can also request an additional extension to Oct. 15 using Form 4868.

Tax-filing deadlines for service members deployed to combat zones are extended for the period of their service in the combat zone, plus 180 days.

Most allowances, such as the Basic Allowance for Housing, aren’t taxable, but there are exceptions, such as the Basic Needs Allowance. The IRS has ruled that the Warrior Dividend payments of $1,776, sent to all service members in December, are not taxable.

When service members are serving in a combat zone, or in direct support, their income for any month in the zone is generally tax-free.

Defense officials began offering flexible spending accounts for dependent care and out-of-pocket health care costs in the last few years, allowing service members to contribute set amounts of pretax earnings to help defray their costs by reducing their taxable income. Service members have an additional grace period, through March 15, to incur eligible child care expenses, that can be reimbursed from the previous year’s contributions to their dependent care flexible spending account.

Free tax prep and filing help

Service members and their families have access to free, military-specific tax software and consultants, offered exclusively through Military OneSource’s MilTax resources. This is the only free tax preparation software designed for the military and the unique tax rules that apply to the military, guiding you through preparing and filing your federal tax returns and up to five state returns. Filing electronically is the fastest and most reliable way to get your taxes done, and to get your refund, Mitchell said.

According to the IRS, most refunds are issued within 21 days for taxpayers who file electronically and choose direct deposit. The IRS has a tool for checking on the status of your refund that you can find here.

Your eligibility for MilTax is verified through the Defense Enrollment Eligibility Reporting System, widely known as DEERS. You get access to the MilTax free tax preparation software through militaryonesource.mil.

Connect with MilTax consultants by calling 800-342-9647. There are also overseas dialing options. Or you can log in to your Military OneSource account to start a secure live chat and schedule a consultation. They’re available 24 hours a day. These are experienced tax preparers who have certifications in their field, such as enrolled agents or certified public accountants. These MilTax consultants are available to those eligible for Military OneSource regardless of whether you use the separate MilTax software.

Also, some U.S. installations operate a volunteer income tax assistance tax center with tax preparation services. Check with your military legal assistance office or Military OneSource locator.

All DOD tax statements, including W-2s, are available through the military’s myPay site at mypay.dfas.mil.

Avoid common mistakes and scams

According to the IRS, the most common mistakes people make when filing their taxes are the wrong Social Security number, mathematical errors and omitting an item that an employer had already submitted with income.

“Make sure you’ve received all the income documents. If you receive something later, you can and should submit an amended return,” Mitchell said.

You should use the same number that’s on your Social Security card. If you use the electronic tax preparation software, you can usually avoid math mistakes, Mitchell said. She also advises printing out your return before filing it electronically to check for possible errors.

Scammers usually target people by impersonating the IRS to try to get you to share personal information. They try to scam people through mail, telephone, text, email and social media; the IRS doesn’t initiate contact with taxpayers in these ways, Mitchell said.

Among the warning signs that it’s a scam: the message is unexpected, rushes or threatens you; offers refunds, credits or deductions; pressures you for personal or financial information; tells you to “pay now or else”; or they don’t let you question or appeal the amount of “tax” you owe. Odd or misspelled words in web links can take you to harmful sites instead of IRS.gov.

If you choose to pay to get your taxes done through a paid preparer, be aware that if you borrow the money from that preparer that you expect to get as a refund, then you’ll pay a portion of that refund to the preparer for their fee. And they typically charge interest. By law, these loans, called tax refund anticipation loans or refund advance loans, can’t charge more than a 36% annual percentage rate.