Returns for Military Families
Killeen's residents include active-duty soldiers, their spouses, Army civilians, contractor staff and well over a hundred thousand military retirees living in the region. Their returns involve rules most civilians never see. BOMCAS prepares personal returns for Killeen residents remotely.
For homestead and community property rules, see the Texas personal tax page; below are the military returns we prepare in Killeen.
What Is Taxable in Military Pay
Basic pay, special pay and bonuses are taxable. Housing and food allowances, BAH and BAS, are not taxable and do not appear in the taxable wages on Form W-2. Uniform allowances and family separation allowances are also excluded.
Combat Zone Pay
Enlisted soldiers and warrant officers exclude eligible military pay earned for a month in which they serve in a combat zone, even if they serve only part of the month. Payment can arrive later. Retirement pay is not covered, and bonuses and leave payments have their own timing rules. Commissioned officers have a monthly cap equal to the highest enlisted pay plus the imminent danger or hostile fire pay received. Soldiers serving in a combat zone also get extra time to file and pay. Combat pay can still count as earned income for the earned income credit if the soldier elects to include it, which sometimes increases the credit.
State of Residence
Soldiers keep their state of legal residence when stationed in Texas, so a soldier from a state with income tax may still owe that state on military pay. Under the Servicemembers Civil Relief Act, a couple may elect, for each tax year, to use the soldier's state of residence, the spouse's, or the state of the soldier's permanent duty station. For a spouse working in Killeen, electing Texas as the duty station state can mean no state income tax on the spouse's wages.
PCS Moves
Active-duty members moving on permanent change of station orders can deduct eligible unreimbursed transport, storage and travel costs on Form 3903; meals are not deductible. Most qualifying military moving allowances are excluded from income, but costs already reimbursed tax free cannot be deducted again. Records of the move and the orders should be kept.
Selling or Renting a House After Orders
Homeowners can exclude up to $250,000 of gain, or $500,000 for married couples, if they owned and lived in the home for two of the five years before sale. Soldiers on qualified official extended duty can elect to suspend the five-year period for up to ten years. The duty must be for more than 90 days or indefinite, at a station at least 50 miles from the home or while living in government quarters under orders. The election covers only one property at a time, and rental depreciation remains taxable when the home is sold.
Retirees and VA Disability
Military retired pay is taxable. VA disability compensation is not taxable, and Combat-Related Special Compensation is also excluded. Retirees with a retroactive VA determination may amend returns to recover tax on the excludable portion of retired pay, supported by the VA letter; it does not make the whole pension tax free. A special one-year period from the determination can extend the normal refund deadline for tax years beginning no more than five years earlier.
Civilians and Contractors
Army civilians contribute to the Federal Employees Retirement System and the Thrift Savings Plan. Contractor staff who deploy overseas may claim the foreign earned income exclusion only if their tax home and residence tests are met abroad, which is rare for short deployments.
Reserve and Guard Members
Reserve members who travel more than 100 miles from home for reserve duties can deduct qualifying unreimbursed travel as an adjustment to income, within federal rate limits, even without itemising. Form 2106 supports the Schedule 1 deduction.
Children and Credits
Military families often claim the child tax credit and the credit for child care. Care paid through on-post child development centres counts, and dependent care accounts offered to civilian employees reduce the expenses available for the credit.
Survivors
Families who lose a soldier receive death gratuity payments and life insurance, which are not taxable.
What to Bring
- W-2 and LES records.
- Orders and move records.
- Retired pay statements and VA letters.
- Rental records.
- Last year's federal and state returns.
Killeen Personal Tax Preparation Questions
Is BAH taxable?
No.
Do I pay tax to my home state while stationed at Fort Hood?
Possibly, depending on your home state's rules for military pay.
Is VA disability taxable?
No.
Can I still sell my old house tax free after years away?
Often yes, since qualified extended duty can suspend the five-year test for up to ten years.
Talk to BOMCAS About Personal Tax Preparation in Killeen
Spouse businesses need books and sometimes a business return. Household employees go through payroll, short-term rentals owe hotel tax, retirement and moves are planning topics, missed years go to back taxes and foreign spouses to cross-border tax. Our Texas pages explain the statewide rules on business tax, sales and use tax, bookkeeping, payroll, tax planning, back taxes and cross-border tax, all reachable from the Texas overview.
Whether you are sorting out a house after new orders, a spouse business that moved with you or a contract that needs cleaner books, send BOMCAS a short note. We will say what we would review first and what a quote depends on. Write through the contact page or the form below, phone 780-667-5250 or email info@bomcas.ca. Every Killeen service links back to the Killeen overview. Nothing here is advice for your particular case; it is general information.