As career-minded service members rotate through a rising number of combat zones and hazardous duty areas, including the Persian Gulf, the Balkans, and now Afghanistan, they are learning, with encouragement from commands, to time their reenlistments to take advantage of tax breaks embedded in such assignments.
The effect on reenlistment rates on deployments into tax-free zones can be "awesome," said Vice Admiral Norbert Ryan, Chief of Naval Personnel.
Admiral Ryan noted, for example, that a six-year bonus for certain nuclear-qualified ratings amounts to $60,000, with half paid immediately and the rest in equal yearly increments through the enlistment period. When the reenlistment is executed while a ship transits the Red Sea, a combat zone, the entire bonus is tax free. Assuming that a nuclear-trained sailor ordinarily faces a 28% tax bite, reenlisting while in a combat zone can boost take-home pay on a six-year bonus by as much as $16,800.
For enlisted members and warrant officers, all military compensation paid while assigned to danger areas is tax exempt, including reenlistment bonuses. The only condition to secure taxfree bonuses is that "all acts necessary to become entitled" occur in combat zones or hazardous duty areas. Typically, that means completion of the right forms and taking an oath. Even members only briefly assigned to combat zones (for example, crewmen on board a military jet taking VIPs into a combat zone) can save thousands of dollars by timing their reenlistments.
Officers also get tax breaks, but they are more limited. Officer income is exempt from taxes up to $5,382.90 a month, the basic pay rate of the service's top enlisted member. Whatever added income an officer receives is taxed fully, including hefty retention bonuses for pilots.
The tax breaks can influence profoundly a person's reenlistement decision. Some planning not to reenlist change their minds. Others who intend to sign up only for the shortest time are tempted into longer hitches by cash bonuses fattened by the tax exemptions.
Army Sergeant Nancy Blanchard Brevard, a 25-year-old surgical technician with the 28th Combat Support Hospital at Fort Bragg, North Carolina, arrived in Tuzla, Bosnia, last September for a six-month temporary assignment. Before deployment, she was briefed on the hazardous area tax breaks. By November, after only two months in Bosnia, she reenlisted.
Sergeant Brevard said her first enlistment was not due to expire until June 2002. By then, however, she would have been back in North Carolina and the tax break would have been lost. What surprised her was that she signed up for six years, longer than she had planned. But in return she received a $10,000 bonus, all tax free, and half of it paid immediately. To sweeten the deal, the Army also offered her a choice of her next assignment, which is another reason she decided to reenlist early.
The services, looking for any advantage to retain skilled people, are becoming more aggressive in helping members enhance bonuses through tax breaks. This past June, the Air Force changed its policy to allow reenlistments up to a full year—rather than three months—before current service obligations expire. This move increased the opportunity for Air Force members to reenlist while in tax-exempt areas.
The Navy, acting on the initiative of deployed battle group commanders, recently has been the most ambitious service in stretching reenlistment policy to take advantage of combat zones. This past summer, as the Enterprise (CVN-65) and Constellation (CV-64) battle groups prepared to return home from the Arabian combat zone, Navy leaders in Washington got word that hundreds of sailors in the battle groups leaned toward reenlisting, but the bonus offering would lose a lot of appeal once the ships left the Arabian combat zone.
Navy leaders studied the situation and then acted. First, they approved all eligible reenlistment requests for fiscal year 2001. Then they temporarily modified the selective reenlistment bonus policy so that sailors eligible to reenlist only in fiscal year 2002 could do so in fiscal year 2001. This allowed scores of sailors to qualify for the tax breaks. The Constellation battle group got the word with only a day to spare, requiring a Herculean administrative effort to pull it off.
The Navy "broke patterns and traditions" to keep more good sailors, Admiral Ryan said. But the payoff went far beyond a small spike in reenlistments, he suggested. Commanding officers and command master chiefs told him, Admiral Ryan said, that "the most important part of the story was the reaction of all the people who watched us make this happen."