I’m sure many people are aware of the Wisconsin tax benefits of being in the military or retired from the military. But I just want to make sure everybody’s aware of them, because some of these benefits are really helpful when it comes to doing your taxes at the end of the year, so let’s talk about that.

So it looks like you have a lot of items here … let’s get started.

Ok, so the first one is combat pay exception. So any wages while you’re serving like on a hazardous duty or in combat zones and you’re enlisted, those wages are actually exempt from federal and state tax. So I think the government figures if you’re serving your country and in harm’s way, “We’re not going to actually tax you on those wages that we’re paying you,” so that’s a good thing.

And if you’re in the Reserves or National Guard and you get called in to duty, that time that you get called in to duty—those wages are not subject to income taxes.

Now, a couple things:

  • They have to be paid by the federal government (they can’t be paid by a state government).
  • It can’t be something for like when you go to your two-week or weekend trainings; those don’t count. So only the times that you’re out in combat.

So if someone is killed in the line of duty, is that also exempt?

It is. So any kind of death (what they call “death gratuity”) for someone passing away in the line of duty, that is exempt from Wisconsin income.

What about military retirement benefits?

This is a big one, too, because retirement benefits paid from the U.S. military retirement system are exempt from Wisconsin tax, so that could be a big number. And any time that someone receives a 1099 or a payment from the Defense Finance and Accounting Service (DFAS), that is a red flag to us, because that entity only pays out retirement income to military retirees, and so we always know that that is going to be exempt for Wisconsin and it’s exempt for their surviving spouses if they receive it after the person passes away.

What about property tax; there’s a credit for that, correct?

There is. This one is one that a lot of people don’t know about, and you have to have special circumstances. But it’s called the Wisconsin Veterans & Surviving Spouses Property Tax Credit. Unlike the ones we discussed earlier, which are really just tax deductions, this one’s actually a tax credit, and the tax credit’s refundable, so even if you don’t owe any tax, you can still get a refund back of your property taxes.

So how does a veteran actually qualify for the credit?

As long as they’re a Wisconsin resident and they have what’s called a Service-Connected Disability (or an “SCD”), they may be eligible for this credit. What you’ll do is—if you have any kind of SCD—you’ll want to go to the Wisconsin Department of Veterans Affairs and see if you actually qualify, because they have to certify you.

Now, what about disabled veterans. Who should they talk to to get their certification?

What they should do is contact their local Veterans Service Office in their area.

And you also mentioned, though, that this is available to a surviving spouse, correct?

It is. So once the military member passes away, their spouse gets it for the rest of their life, unless they get remarried; at that point, they lose the benefit.

 

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Jeff Dvorachek
I joined Hawkins Ash CPAs in 1998. I am the partner-in-charge of the Manitowoc, WI, office and tax director for the firm. I have thorough experience providing tax services to individuals, commercial businesses, nonprofit entities and estates and trusts. I also provide compilation and review services. I lead the Tax Committee and am a member of the Information Technology Advisory Committee.

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