The following general information is for parents of USAFA cadets and the cadets
themselves, and addresses a few of the most frequently asked tax questions at the Tax Center.
Exemptions for Dependents
Once at the Academy, a cadet is a member of the active military and no longer
dependent upon parents for support. Cadet basic pay is taxable and the cadet receives a Form
W-2 and must file a tax return (see IRS Publication 17). Fourth-class cadets who were high
school seniors in 2008 and meet all five tests for a qualifying child may be claimed as a
dependent by their parents and may not claim their own exemption. See IRS Pub 17, Chapter
3, Personal Exemptions: “You can take one exemption for yourself unless you can be claimed
as a dependent by another taxpayer. If another taxpayer is entitled to claim you as a dependent,
you cannot take an exemption for yourself even if the other taxpayer does not actually claim
you as a dependent.”
Education Tax Benefits
Since USAFA is not eligible to participate in a student aid program administered by the
Department of Education, it is not an eligible educational institution as defined in IRS
Publication 970, Tax Benefits for Education, and does not file any Form 1098-T. Because
USAFA is not an eligible educational institution, any education expenses a cadet may incur are
not qualified education expenses for the Hope or Lifetime Learning Credits, the Tuition and
Fees Deduction, or distributions from education savings plans.
As a result, a portion of the distribution from Coverdell Education Savings Accounts
(ESA) and/or Qualified Tuition Programs (QTP, also called “529 plans”) is generally taxable
to the cadet. A Form 1099-Q is issued for each plan with a distribution and the information
contained on the form is necessary to complete the cadet’s tax return correctly (see IRS Pub
970, Chapters 7 and 8). The 10% additional tax penalty on the amount included in income does
not apply to distributions made because of the beneficiary’s attendance at a U.S. military
academy.
Uniforms
The cost and upkeep of uniform items is not deductible as an Unreimbursed Employee
Business Expense, contrary to popular belief among military members and tax professionals.
IRS Pub 3, Armed Forces’ Tax Guide, clearly states: “You usually cannot deduct the expenses
for uniform cost and upkeep. Generally, you must wear uniforms when on duty and you are
allowed to wear them when off duty. If military regulations prohibit you from wearing certain
uniforms when off duty, you can deduct the cost and upkeep of the uniforms, but you must
reduce your expenses by any allowance or reimbursement you receive.”
