Reservists and taxes

Sylvia Porter

October 02, 1990|By Sylvia Porter | Sylvia Porter,1989 Los Angeles Times Syndicate, Times Mirror Square, Los Angeles, Calif. 90053

If you are among the military reservists called to active duty in connection with Operation Desert Shield, you are directly affected by new personal financial problems. So are your wives, children, parents, other relatives and employers.

The letters are beginning to come in loads: How does this change my taxes? What happens to my employee benefits? Will I get my job back? As an employer, what are my obligations to employees who are called to active duty?

To help you with the answers, I enlisted the help of Eli J. Warach, chief consulting editor, Maxwell Macmillan/Prentice Hall.

Q: We are the parents of a 23-year-old, Bob, who finished his college education this spring. Under ordinary circumstances, we would be able to claim Bob as a dependent, having supplied more than half his support. Now he is on active reserve duty overseas. Our tax question is whether we will be able to claim him as a dependent.

A: On your facts, the chances are that you will be able to claim a dependency deduction for Bob. It all depends on who supplies the most support for him during 1990 -- you or Bob plus the military. The general rule here is that what the government supplies is treated as his own contribution to his support.

Because you supplied him with support for the bigger part of the year, there's a good chance that your support was more than the combination of what he earned for his own support and what he gets from the government. It has to be decided on a case-by-case basis.

Q: I read that enlisted men do not have to pay tax on their military pay. Also, commissioned officers could earn $500 a month tax-free. Can that be right?

A: It could be right -- but it's not now. Here's why: There is a provision in the tax law that provides exactly that, except it applies only to duty in a "combat zone." (The last one was Vietnam.) So while the provision still is in the Internal Revenue Code (Section 112), it has no effect right now.

Q: My unit has been called up for active duty. I spoke with my boss about my job (I know the law says that he has to give me back my job). He told me that the company has agreed to pay me the difference between what I was making and the much-smaller amount I'll get from the Army. Do I pay Social Security taxes on the amount the company pays me?

A: Good news. You don't pay Social Security on that amount. Neither does your employer. A Revenue Ruling says that the amount you get from the company is not for services rendered by you as an employee. In other words, it's not wages.

There is no federal income-tax withholding or unemployment tax on this money, but the income still is subject to income tax.

Q: My daughter Carolyn has been called to active duty. She will serve at McGuire Air Force Base in New Jersey and then will be transferred to California. (She is a captain in the Air Force.) Her move to California (with her two children) is considered "permanent" -- at least until she is relieved from active duty. Who takes care of the moving expenses?

A: If you are a member of the armed forces on active duty and you move because of a permanent change of station, you can deduct a limited amount of your unreimbursed moving expenses. You do not have to meet distance and time tests.

Do not include in income the value of moving and storage services provided by the government in connection with a permanent change of station. However, if you receive reimbursements or allowances from the government that are more than your actual moving expenses, include the excess in income.

If your reimbursements or allowances are less than your actual moving expenses, do not include the reimbursements or allowances in income.

TOMORROW: Continuing health insurance

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