Financial changes can be easy to overlook when transitioning out of active duty. With the complete upheaval often faced by transitioning service members and their families, consideration of some of the financial impacts soon to follow can fall by the wayside.
Taxes are difficult to comprehend for most individuals, and many active-duty military members may not realize how their service has impacted their taxable income and refunds in the past.
First, consider the loss of allowances and tax exclusions. As an active-dut'y servicemember, the Basic Housing Allowance and Basic Allowance for Subsistence are included in your total compensation, but are non-taxable.
In your new job, you may receive the same or greater compensation than before you separated or retired from the military, but the loss of this tax-free status can make a large difference in which marginal tax bracket you fall into.
Next, review the potential changes to your state income taxes. Most active-duty servicemembers know about their ability to claim residency in a state where they have established a residence, even after they have PCSd from that state.
This becomes important when you look at the state income tax rate for certain states, or the ability to claim residence in a state which does not have state income tax. Certain states may also not tax military retirement pay. Do your research to determine your best choice for claiming residency.
There are many other financial impacts to take into account. For additional information on this issue, see "9 Tax Considerations For Transitioning Servicemembers" in The Military Wallet.
Finally, many students are unaware of the tax breaks available to them for pursuing higher education. The National Association of Student Financial Aid Administrators provides information on tax breaks or refunds that may be available to you.
We'll be bringing you additional insight into Expiration of Term of Service topics here in the near future. Stay tuned.