Outraged Yet? A Tax Reason the Pentagon’s Clawback Sucks — Updated

By: Sam Brunson

cngYesterday, both my Facebook and WBEZ told me about how the Pentagon is clawing back bonuses it paid—a decade ago!—to members of the California National Guard as reenlistment bonuses. [Update, 10/26/16: today, Defense Secretary Ash Carter ordered the Pentagon to suspend its efforts to claw back the bonuses. Note, though, that there’s no indication that it will return any portion of bonuses that have already been clawed back, so the tax issues still stand, afaik.] 

The whole story is pretty enraging, but, so that I don’t bury my particular lede too far: though the stories don’t discuss the tax consequences to the soldiers, the soldiers are likely to miss out on significant deductions that they deserve.

To understand why, you need to know about the clawbacks. I’ll let the LA Times do the hard explanatory work, but in brief: in the mid-2000s, the military was facing recruitment shortfalls, so it started offering super-generous incentives to the military to get them to reenlist, and it paid those incentives (often $15,000 or more) upfront, essentially replicating private sector signing bonuses.  Continue reading “Outraged Yet? A Tax Reason the Pentagon’s Clawback Sucks — Updated”