In the Military

Gregg K. Kakesako

Sunday, February 1, 2004

See also: For Your Benefit


Military income tax
exemptions proposed

Gov. Linda Lingle, in her State of the State address Jan. 26, proposed exempting from state income taxes the military pay of those fighting in combat zones.

She said the exemption would apply to the Hawaii National Guard and Army, Navy, Air Force, Coast Guard and Marine reservists.

Maj. Gen. Bob Lee, state adjutant general and head of the Hawaii National Guard, said the request is in line with a federal law passed last year that excludes a military person's base pay from federal income taxes.

"We just want to mirror the federal law," Lee said.

He said Lingle's proposal would be retroactive to include all of last year to cover the wages earned by Hawaii Air National Guard personnel who served in Saudi Arabia during the latest Iraqi conflict, as well as 62 Hawaii Army Guard soldiers who were sent to Afghanistan last summer.

An additional 200 Hawaii Army Guard soldiers from the 193rd Aviation, along with nearly 400 members of the Hawaii Army Reserve's 411th Engineer Combat Battalion, will be sent to Iraq for a year this spring.

The Internal Revenue Service reports that the Military Tax Relief Act provides income exclusions for death benefit payments and certain home sales done by military members. Both provisions are retroactive, so some qualifying taxpayers must file amended returns to claim these tax breaks. The IRS asks them to put the words "Military Family Tax Relief Act" in red at the top of such returns to speed processing.

The new law doubled the benefit paid to survivors of deceased military members to $12,000, made the entire amount tax-free and made the changes effective for deaths occurring after Sept. 10, 2001. Previously, only $3,000 was tax-free. Recipients who already paid tax on benefits received for deaths after the effective date may file an amended return on Form 1040X, reducing their adjusted gross income by the $3,000 they had reported as taxable. Those who receive such benefits in 2003 and future years will not have to report them on their tax returns.

Taxpayers may exclude gain on a home sale, provided they have owned and used the home as a principal residence for two of the five years before the sale. A reduced maximum exclusion may apply to those who satisfy part of the two-year rule.

The new law allows people on qualified extended duty in the U.S. armed services or the Foreign Service to suspend this five-year period for up to 10 years of such duty time. A taxpayer is on qualified extended duty when at a duty station that is at least 50 miles from the residence sold, or when residing under orders in government housing, for more than 90 days or for an indefinite period.

This change applies to home sales after May 6, 1997. Although an amended return must usually be filed within three years of the original return's due date, the law gives qualifying taxpayers who sold a home before 2001 until Nov. 10, 2004, to file an amended return claiming the exclusion.

A taxpayer may use Form 4506, "Request for Copy or Transcript of Return," to get an earlier year's tax return. This form and Form 1040X are available on the IRS Web site at or by calling (800) TAX-FORM (829-3676).

Moving Up

>> Pearl Harbor: Capt. Frank Camelio will become the 45th commander of the Pearl Harbor Naval Shipyard, relieving Capt. John Edwards.

See the Columnists section for some past articles.

"In the Military" was compiled from wire reports and other
sources by reporter Gregg K. Kakesako, who covers military affairs for
the Honolulu Star-Bulletin. He can be reached can be reached by phone
at 294-4075 or by e-mail at


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