Military Family Tax Relief Act of 2003

The President signed into law the Military Family Tax Relief Act of 2003 (P.L. 108-121) The bill contains a package of tax relief for members of the armed forces. In addition to tax relief for the military, the bill also suspends the tax-exempt status of terrorist organizations. The bill also extends the income and estate tax relief contained in the Victims of Terrorism Tax Relief Act of 2001 (P.L. 107-134), granted to victims of the September 11, 2001 terrorist attacks to families of astronauts who die in space missions.

Some of the relief granted includes:

1. Doubling of the military's death gratuity payment to $12,000 and exempting that amount from taxation. This change is retroactive to Sept. 11, 2001. The DOD will send checks to those who are eligible for the retroactive application. Those who paid tax on any death benefit received, should file an amended tax return.

2. Relating to exclusion of gain from the sale of a principal residence, it allows military personnel to make an election to suspend the five year ownership and use test during any period they are on qualified extended duty while in uniform. The five year period can not be extended beyond 10 years. The new duty station must be at least 50 miles from the residence. The new assignment must be for a period in excess of 90 days or be indefinite. This change is retroactive to May 1997 when the current rules went into effect. Eligible members will need to file amended tax returns to obtain the benefit of this change. The normal 3 year rule for filing amended tax returns to obtain a refund has been changed by this law. Military personnel have until Nov. 11, 2004 to file an amended return all the way back to 1997.

3. Allowing National Guard and Reserve personnel an above-the-line deduction (adjustment to gross income) for overnight travel expenses. Eligibility requires travel overnight to a destination that is more than 100 miles away at the member's expense. This deduction is retroactive to Jan. 1, 2003. Those eligible should take the deduction on Line 33 of the 2003 Form 1040.

4. Clarifying that dependent care assistance provided under a dependent care assistance program is excludable from gross income as a qualified military benefit.

5. Allowing those who served in a combat zone the ability to delay filing and paying income tax for up to 180 days after their return to the U.S. All penalties and interest charges are put on hold for the same period.

6. Preventing a state from including in income a nonresident service member's military compensation when computing the tax rate applicable to income derived from sources within that state.

Military Family Tax Relief Act of 2003 (PL 108-121)
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