Tax Considerations for Reservists

Members of the United States Armed Forces are eligible for a number of special tax benefits. Additionally, Armed Forces reservists, regardless of duty status, can  take advantage of tax-related benefits, such as considerations for travel and business expenses, military differential pay and tax deferral status.

If you are an Armed Forces reservist and travel more than 100 miles away from your home to perform reserves service (such as drills or meetings), travel-related expenses can be subtracted directly from the income reported on your tax return as an adjustment to income.  You do not have to itemize deductions to take advantage of these benefits. Also, unlike most other employee business expenses, the deduction for these expenses is not subject to the standard 2% Adjusted Gross Income (AGI) limit.  Allowable expenses include those that cover overnight transportation, meals, and lodging. 

Reservists can deduct additional employee business expenses only if they itemize deductions on Schedule A (rather than take the standard deduction).  Itemizing is generally a better option if you have enough deductions to exceed the standard deduction for your filing status A professional tax preparer like Jackson Hewitt can help reservists understand these and the other job-related deductions available.

Reservists called to active duty may receive military differential pay from their employer to represent the difference between their regular salary, prior to being called to active duty, and the amount being paid by the military.  Military differential pay is voluntary by an employer and has special rules.  For example, the pay is not considered wages and therefore is not subject to Social Security, Medicare, or income tax withholding.  The income should be reported on Form 1099-MISC (Box 3) and on Form 1040 (Line 21) as “other income” when filing a tax return. Additionally, this pay will not qualify for the combat pay exclusion. Even though this income is not subject to any withholding, it is still considered taxable. 

Another benefit for reservists called to active duty is that they may qualify for a deferral of taxes owed if you can show that your ability to pay taxes was affected by your military service.  The deferral is not automatic; you will need to apply for it.  When applying, you must show how your military service impacted your ability to pay.  You must have received a notice of tax due, or have an installment agreement with the IRS before applying for the deferral.  The deferral does not extend deadlines for filing any tax returns.

Many tax benefits exist for all members of the military, regardless of the branch of service or duty performed.  However, the rules are complex and change often. Being aware of the many tax considerations can help military men and women take advantage of all of the relevant credits and deductions. A list of additional rules and tax benefits available to military service members is available at