35.8 Tax Information for Reservists

Transportation costs to reservist meetings generally are not deductible. A possible exception is the cost of traveling from your regular job location to a meeting held on a regular workday or traveling from home to a meeting outside the metropolitan area where you live and normally work. The cost would be deductible, subject to the 2% adjusted gross income (AGI) floor for miscellaneous itemized deductions (19.1).

If you travel overnight more than 100 miles away from your tax home (20.6) to a meeting or training camp, you may claim an above-the-line deduction (12.2) for transportation, lodging, and meals (subject to the 50% reduction for meals) attributable to those trips; see the Filing Tip in this section.

Filing Tip

Overnight Travel to National Guard and Reserve Meetings

National Guard and Reserve members who travel over 100 miles and stay overnight to attend Guard or Reserve meetings may claim an above-the-line deduction from gross income for their meals, lodging, and incidental expenses that do not exceed the federal per diem rate, plus the standard mileage rate for driving costs and parking fees and tolls. The expenses are reported on Form 2106 and the amount attributable to the over-100-mile-away trips is entered on Line 24 of Form 1040 as an above-the-line deduction from gross income (12.2). Other travel costs from Form 2106 are allowed on Schedule A (Form 1040) only as miscellaneous itemized deductions, subject to the 2% of AGI floor.

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Deferring tax payments and reduction of IRS interest rate.

If you owed a tax deficiency to the IRS before being called to active duty, the IRS may defer payment, without interest, if your ability to pay has been severely impaired by your call-up (35.7). If you are not allowed a deferment, the IRS generally will reduce its interest charge to 6% on the taxes you owed before your call-up.

Penalty-free withdrawals from retirement plans.

If you are called to active military duty for over 179 days, or indefinitely, distributions received during the active duty period are not subject to the 10% penalty for distributions before age 591/2. This applies to distributions from a traditional IRA and distributions attributable to elective deferrals you made to a 401(k) or 403(b) plan.

Furthermore, no tax (as well as no penalty) is due on a qualified reservist distribution if it is recontributed to a traditional IRA within two years after the end of the active duty period. Repayment must be made to a traditional IRA even if the distribution was from a 401(k) or 403(b) plan. The repayment should be reported on Form 8606 (Line 1) as a nondeductible contribution to the traditional IRA.

Distributions of unused balance from health flexible spending arrangement (HFSA).

If you contribute to a health flexible spending arrangement (3.15), but before you can use up your HFSA balance to reimburse your medical expenses you are called to active military duty for over 179 days, or indefinitely, you can withdraw the funds and use them for any purpose if your employer allows “qualified reservist distributions” and you withdraw the balance by the regular plan deadline for receiving reimbursements. If your employer allows employees to obtain reimbursements of medical expenses within a 2½-month grace period after the end of the plan year (3.15), you have the same deadline to receive a distribution of your HFSA balance, but it does not have to be used to pay medical expenses.

Law Alert

Penalty-Free Withdrawals From Retirement Plans

Individuals who are called to active duty for over 179 days may withdraw funds from a traditional IRA, 401(k) or 403(b) plan before age 59¹/₂ without penalty (35.8).

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Uniform costs of reservists.

The cost and upkeep of uniforms is deductible only if you are prohibited from wearing them when off duty; see 19.6. A deduction allowed under this test must be reduced by any uniform allowance you receive, and the unreimbursed cost is subject to the 2% adjusted gross income (AGI) floor for miscellaneous itemized deductions.