The Internal Revenue Service (IRS) has recently updated its frequently asked questions (FAQs) on Fact Sheet 2023-26. The update pertains to question 9 and clarifies the tax implications for wrongfully incarcerated United States military service members who receive back pay after a court-martial conviction is reversed.
The updated FAQ now states that such service members cannot exclude these payments from their gross income under the Wrongful Incarceration Exclusion. This stipulation applies if the payments are simply the restoration of pay and allowances that the service members are legally entitled to.
The updated questions and answers read as follows:
Q9. Can a wrongfully incarcerated United States military service member who receives back pay following the reversal of a court martial conviction exclude the payments from gross income under the wrongful incarceration exclusion? (updated Nov. 13, 2023)
A9. No. A United States military service member who is a wrongfully incarcerated individual and who receives back pay following the reversal of a court martial conviction may not exclude the payments under the wrongful incarceration exclusion if the payments are merely the restoration of pay and allowances to which the service member is entitled by statute.
The IRS further notes that wrongfully incarcerated individuals who have previously received back pay and excluded the payments from gross income may need to file an amended federal income tax return (Form 1040-X) for the relevant year to report the back pay as income.
This update from the IRS provides crucial information for wrongfully incarcerated service members and their tax obligations. It underscores the importance of understanding and complying with tax laws, especially for those who have experienced changes in their income due to unique circumstances like wrongful incarceration.
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