Military Families Worried About Tax Bills After W-2s Show No Income Tax Withheld

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A volunteer tax preparer does a return for a U.S. Army soldier.
A volunteer tax preparer does a return for a U.S. Army soldier. (U.S. Army photo)

Some troops and their families could be on the hook for a huge tax bill when they file returns, because their military W-2s showed no federal income tax was withheld from paychecks last year.

The Defense Finance and Accounting Service is denying a widespread issue of erroneous withholdings. But Military.com has seen at least six posts from military spouses on social media in recent days saying taxes weren't withheld in 2022 despite their spouses electing for the withholdings.

With the tax filing season officially opened this week, anyone who didn't have taxes withheld from their paychecks could have to pay thousands of dollars they didn't budget for when they file their returns.

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"My husband and I are both panicking," one poster wrote. "He received his W2 but where federal tax withheld is, it shows no number. He had all the same deductions as everyone else. We don't know what to do and the people who are supposed to be fixing it just said 'idk [I don't know] man' when my husband brought it up to them.

"We can't afford to pay $5,000+ but they won't help us fix their mistake either," they wrote.

There are some circumstances in which service members are exempt from federal income tax, particularly if they are serving in a combat zone recognized by the IRS. It was unclear whether any of the military families expressing concern fall under those exemptions.

After Military.com reached out to the Defense Finance and Accounting Service, or DFAS, about the posts on social media and shared screenshots of the posts with names redacted, officials said they checked a sample of service members who had no federal income tax withheld but found no mistakes.

"We have not noted issues associated with incorrect income tax withholding," Steve Lawson, DFAS spokesperson, said in an emailed statement. "To follow-up on your outreach, our team pulled a sample of service members who had no federal taxes withheld, and in each case, the withholding was correct based on the member's salary and elections the member had made related to filing status and number of dependents."

While Lawson said DFAS has had a high volume of calls at the start of tax season as it always does, he maintained that none has been about W-2 deduction mistakes. DFAS is the centralized agency in charge of military and Pentagon financial matters, such as issuing W-2s.

"We have checked incoming calls to our customer care centers, and we do not have an influx of calls related to erroneous withholding," he said.

Some of the posts on social media said they have reached out to DFAS, with one saying their husband was told "new IRS tax tables" are to blame.

A couple of posters said they were relying on refunds to help them with upcoming big expenses such as moving but are now faced with the possibility of a large tax bill.

"We are barely scraping by so we were counting on our refund to help us out for the move," one of the posts said. "We never gave them permission to make those changes and they never made us aware of them."

Lawson said DFAS would be "happy to research" individual cases, but that as of now, "we do not see anything that indicates a problem."

-- Rebecca Kheel can be reached at rebecca.kheel@military.com. Follow her on Twitter @reporterkheel.

Related: 2023 Tax Deadlines Are Coming Up: Here's What You Need to Know

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