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Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Im active duty in the military and signed a reenlistment contract

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I'm active duty in the military and signed a reenlistment contract on 13mar09. I reported to my unit in a tax free combat zone on 22mar09. I received my reenlistment bonus on 15apr and it was listed as taxable gross income on my Leave & earnings statement andt taxed at 25% though the rest of my pay for mar and apr were listed as exempt. I thought my bonus would be tax free since i signed it during a month in which i served in the combat zone. will i be able to decuct it from my taxable income on my 2009 taxes?
HelloCustomer

Any reenlistment bonus that you receive is not subject to tax, if the reenlistment occurs in a month that you served in a combat zone.

If you signed your reenlistment contract in March of 2009 and also served in a combat zone in March of 2009, the amount is not subject to tax.

In order to have this amount not be subject to tax, you will need to contact your military pay office to have them redesignate this payment as non taxable. If they do not redesignate the payment, it would end up being reported on your W-2 form and would be subject to tax, so this is the only way that you can avoid the tax, is by having them correct the designation of this payment.

My guess is that since you signed the reenlistment contract prior to reporting to the combat zone, they likely classified it as taxable based on your non-combat zone status at the time of signing. However, since you were assigned to a combat zone later that same month, they should make this correction for you.

Please refer to the following publication on page 8 which talks about this under combat zone exclusion.

http://www.irs.gov/pub/irs-pdf/p3.pdf

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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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