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Federal Tax on Military Retirement Pay

Most military retirement pay is treated (and taxed) as normal income, but in certain cases it can be excluded

In the eyes of the federal government military retired pay is no different from any other form of income, which means that you have to pay income tax on it.

Generally payment you receive as a member of the military is taxed as wages. But retirement pay is taxed like a pension. If your retirement pay is based on age or length of service it is taxable and must be included on your tax return on the section for pensions and annuities (this is line 16 on the actual Form 1040 [U.S. Individual Income Tax Return]).

In fact taxes should be withheld from your retired pay before you even get it. How much is withheld depends on how many exemptions you claim on your Form W-4 [Employee’s Withholding Allowance Certificate] after retirement. You can change how much tax is withheld by completing a new W-4. Claiming 0 exemptions means that the maximum amount of tax will be withheld; the more exemptions you claim the less will be withheld.

In January after the end of the tax year you should receive a Form 1099-R [Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.] showing how much retired pay you received and how much tax was withheld. You must report this information on your tax return. Continue reading “Federal Tax on Military Retirement Pay”

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How to Prevent Tax Identity Theft

Last year tax identity theft affected 1.1 million taxpayers. Use these tips to prevent someone from stealing your identity and filing a fraudulent return

Every year millions of taxpayers look forward to tax season as a nice fat tax refund is waiting to enter their bank accounts.

But for an increasingly large group of tax filers, tax season can be a scary time. Every year, more and more people become the victims of tax identity theft – their names and Social Security numbers were stolen and fraudulent returns are filed under their names.

Not only do criminals now possess these unfortunate filers’ personal information – with which they can do any number of dastardly things – but these people also have their tax returns rejected by the IRS because every Social Security number can only be used once. They then have to print out their return out, fill out a lot of extra paperwork, and mail it all to the IRS, which slows the process down considerably. Many have to wait months, even upwards of a year, before they get their refunds.

In 2008, there were 51,700 cases of identity theft-related tax fraud. In 2011, that number was over 1.1 million.

So even if you’ve never had your identity stolen, you still need to be vigilant about taking preventive measures. Don’t think it can’t happen to you. Following these steps will save you a lot of hassle and heartache: Continue reading “How to Prevent Tax Identity Theft”

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IRS Rejection Codes

If the IRS rejects your tax return, these codes will explain what went wrong

Getting your tax return rejected by the IRS can mark the outset of a serious freak-out session. Thankfully the process of correcting and re-submitting your return often turns out to be fairly painless.

When you attempt to e-file a return and it gets rejected, the IRS will send you a code which tells you exactly what’s wrong with your return so you can fix it and e-file it again.

This is just another of the many reasons why it pays to e-file. If there’s a problem with your return, you can correct and re-submit your return instantaneously not only ensuring accuracy but making sure that you get your refund as soon as possible.

If your return is rejected, find your rejection code either on the short list of common rejections below or on the complete list at the bottom of the page. Then correct the error on your return and re-submit it to the IRS. Continue reading “IRS Rejection Codes”