Mail Call: Tax-Exempt Income and W-2s

February 16, 2013 | Kate Horrell

W-2 tax statements can be confusing, especially if you don’t print out the back side that explains what all the boxes and codes mean.  And you can’t possibly prepare your tax return correctly  if you don’t know that pay earned in a tax-exempt combat zone is already separated out on the W-2.

This week, I received this email (heavily edited to make it readable):

I’ve been looking at my W-2s and I am confused.  Last year, I entered the Army in April and I received half my bonus.  My W-2 says that I brought home about $20,000 in 2010.    In 2011, I was promoted and I served the entire year, and I received the other half of my bonus.  My W-2 says that I only made $18,000.  I was deployed until September.  How did I make so much less with higher rank?

My answer wasn’t really great, but here is what my answer should have been.  I will email this to Mr. M today!

Dear Mr. M,
The best way to answer your question is to look your W-2.  If you were deployed to a non-taxable combat zone, your income from that time is not reported as taxable income.  The amount in Box 1 reports only your taxable income.
Non-taxable income is listed in Box 12.  This is where pay earned in a tax-exempt combat zone is reported, and it will be listed next to the letter Q.  You may also find your taxable but withdrawn pre-tax traditional Thrift Savings Plan (TSP) contributions listed in Box 12, and marked with the code D.  There will also be a number designating the tax year for which the contributions were made.
Box 14 will list any traditional TSP contributions made while in a tax-exempt combat zone.  They will be listed next to the code E, with the same year designation next to it.
I suspect that you will find that if you add the amounts in Box 1, Box 12, and Box 14, you will see the amount of actual year-to-date pay listed on your December Leave and Earnings Statement.
I hope that helps.
Kate

Do you have other tax statement questions?  This is one area in which I am almost an expert, so I am more than glad to help!

Comments

  1. MICHAEL J SYMONS says:

    I WANT TO KNOW HOW TO DOWNLOAD MY 1099R AND RETIREMENT PENSION STATEMENT.