SCRA Tax Deferral: How to Ask the IRS to Pause Collection During Military Service

The Servicemembers Civil Relief Act is best known for capping interest on car loans and protecting families from default judgments. Fewer people know it also reaches the IRS. If military service has squeezed your income, the SCRA lets you ask the IRS to stop collecting income tax until 180 days after you leave service, with no interest or penalties building up in the meantime.

The statute

50 U.S.C. 4000(a) says that upon notice to the IRS, collection of income tax on the income of a servicemember falling due before or during military service shall be deferred for not more than 180 days after termination of or release from military service, if the servicemember's ability to pay is materially affected by military service.

The rest of the section matters just as much:

• No interest or penalty. Section 4000(b) says no interest or penalty accrues for the deferment period by reason of nonpayment.
• Collection statute paused. Section 4000(c) suspends the statute of limitations on collection for the period of military service plus 270 days.
• Not your share of FICA. Section 4000(d) says the deferral does not apply to the employee tax under IRC 3101, meaning Social Security and Medicare withholding.

Who counts as a servicemember

50 U.S.C. 3911 defines a servicemember as a member of the uniformed services. The IRS manual (IRM 5.1.7.13) lists the Army, Navy, Air Force, Marine Corps, Coast Guard, and the commissioned corps of NOAA and the Public Health Service. The current statute also lists the Space Force.

"Military service" means active duty. For National Guard members, it also includes a call to active service authorized by the President or Secretary of Defense for more than 30 consecutive days under 32 U.S.C. 502(f) to respond to a national emergency declared by the President and supported by federal funds.

What "materially affected" means to the IRS

The statute does not define the phrase. The IRS manual does. IRM 5.1.7.13 says your ability to pay is materially affected if your current monthly income (military income) is less than your monthly income immediately before active duty. If your current income is higher, the IRS deducts current monthly expenses you incur because of military service and compares again.

The manual gives an example: a taxpayer earning $200 more a month in the military, but paying $60 a month for furniture storage and $200 a month for dog boarding because of service, is effectively earning less and is materially affected. The manual also tells IRS employees to resolve borderline cases in the taxpayer's favor.

The test is simple arithmetic. Income before service versus income now, after service-related costs.

The initial-period limit

Here is the part most SCRA summaries leave out. IRM 5.1.7.13, citing Revenue Procedure 57-25, says the IRS treats the deferment as available only for an initial period of military service:

• The period of active duty after induction under a selective service law.
• The first enlistment.
• The first reenlistment after being out of service for a year or more.
• Service after recall to active duty from inactive reserve or Guard status, before any reenlistment, if you were out of military service for a year or more.

For officers, the manual limits the initial period to the first two years after entry. A career servicemember on a third enlistment will usually not qualify under the IRS's reading. That person should look at the SCRA 6% interest cap, which does not have the same limit.

How to ask

Publication 3 and the manual describe the process:

1. Timing. If you have an installment agreement, send a written request to the IRS office that manages it. If you do not, Publication 3 says you must wait until you receive a notice asking for payment, then write to the office that issued it. The request must be made during military service or within 180 days after.
2. Content. Include your name, Social Security number, monthly income and its source before service, current monthly income, a description and amount of expenses incurred because of service (if your income went up), military rank, date you entered service and date you are eligible for discharge. A copy of orders is helpful but not required.
3. The IRS response. IRM 5.1.7.13.1 says a revenue officer who receives a deferment request sends Letter 1175 with Form 15696, Request for Deferment of Collection of Income Tax, and asks you to file any delinquent returns. You get 60 days to respond, and collection is suspended for those 60 days.
4. The decision. Approval comes on Letter 289. Denial comes on Letter 3079 and requires manager approval.

What approval does, and does not do

An approved deferment stops collection until up to 180 days after you leave service. Interest and failure-to-pay penalties do not accrue on the deferred tax. IRM 5.1.7.13.2 notes you remain liable for interest that accrued before service began, and interest resumes on any balance unpaid after the deferment ends.

Two things approval does not stop:

• Refund offsets. The approval letter must tell you that refunds will still be applied to the balance. A non-liable spouse can use Form 8379 to recover their share of a joint refund.
• A tax lien. IRM 5.1.7.13.1 tells the IRS to protect the government's interest during the deferment by filing a Notice of Federal Tax Lien if necessary. Think about how a lien might affect a clearance review before you apply. See federal tax liens for veterans and federal employees.

Joint returns

The manual says the spouse of a servicemember is granted deferment for the same term on jointly filed returns once the request is approved.

If you are denied

A denial is not the end. If the tax was incurred before you entered active duty, you may still be entitled to the 6% interest cap, which does not depend on material effect. Other options include an installment agreement, which also blocks levy while it is in effect under IRC 6331(k)(2), or Currently Not Collectible status if you cannot pay basic living expenses. See installment agreements and Currently Not Collectible status.

And if you are in a combat zone, you may not need the SCRA at all. The combat zone postponement is broader. See the combat zone freeze.