Your PCS orders have finally arrived! Look out! Here comes your “friend” to give you the inside track on how to make a little money at the government’s expense. “Advance pay, man! It’s an interest-free loan from Uncle Sam! Invest it, dude, or get that computer you’ve been looking for. Interest free, baby! That’s free money!” Consider this fair warning:following this “friend’s” advice could land you in hot water, and I don’t mean the Jacuzzi you think you can now afford.
Advance pay is not an interest-free payday loan, although many people seem to think it is. So what then, you ask, is advance pay? At the risk of sounding horribly patronizing, it is what it says: an advance on your pay. You are given a portion of your normal pay in advance. Why have advance pay? No need to re-invent the wheel here, just take a gander at Marine Corps Order 7220.21E: advance pay “is intended to assist with out-of-pocket expenses that exceed or precede reimbursements incurred during a PCS move which are not typical of day-to-day military living.”
The typical advance pay is one month’s basic pay that is paid back over the course of a year.DoD Instruction 1340.18 provides a maximum advance pay of three month’s basic pay paid back over 24 months. According to the instruction, all requests for advance pay have to be substantiated. That is to say you must stipulate what you will use the advance pay for. Anecdotal evidence suggests a month’s worth is more or less automatic, however. If you ask for the maximum amount, your CO is directed by the afore-mentioned DOD instruction to ask what you will use the money for.
“What for” is also provided in the DOD instruction. Examples of appropriate reasons to request advance pay include “a house or apartment hunting trip, supporting two households when the Service member is unable to rent or sell the house at the old duty station, the down payment on purchase of a house, or excess household goods shipment charges.” Living in San Francisco, the “down payment on a house” makes me laugh every time I read it, but note how these reasons tally extremely well with the reasoning in the Marine Corps order above.
Now we come to the “interest-free loan” question. Advance pay is, strictly speaking, an interest-free advance on your pay, not a loan. An advance is a payment to you of your own money you haven’t earned yet. Your paycheck is then “docked” one-twelfth of one month’s pay until you’ve paid it back. A loan is money you haven’t yet earned, and that will have to be re-paid, usually with interest. Clear as mud? It’s not free money, it’s your money, albeit without interest due.
There is a tax implication to advance pay as well. Your advance pay counts as income, and thus is subject to tax. IRS Publication 525 says if you repay an amount you included as income in an earlier year (in this case your advance pay), you may claim the repayment amount as a tax deduction in the year you re-paid the money. If your repayment amount was over $3,000, different rules apply, and you should consult Publication 525 or a tax pro. Make sure you contact a tax professional if you have questions about anything tax related.
The Jacuzzi? The investments? The free money? DOD instruction 1340.18 is explicit: “An advance of pay is not intended to provide funds for such items as investments, vacations, or the purchase of consumer goods that are not the result of direct expenses resulting from the Service member’s PCS orders.” If you claim you are using the advance pay for one the approved reasons and then use it to buy a Jacuzzi or invest in pork belly futures, you, and your “friend” with the good advice, might expect a visit from the JAG. You both may be charged with violation of any number of Articles of the UCMJ.
Make no mistake – that “good advice” your friend gave you about advance pay being a good way to make a little money should be filed away in the same place you put his advice about filling your trunk with cement when weighing your household goods.
If you’ve got advance pay questions, your finance office will have all the answers you need. You can receive advance pay 30 days before you PCS and up to 60 days after you report to your new command, so if during the move you find your expenses are greater than you planned, help is available. Advance pay can be a big help at a time when you really need some. Don’t abuse it. And while you’re at it, get a new friend.
Military Finance: Advance Pay, Special Pay & Bonuses
When it comes to military finance, there are several different ways to get paid as a uniformed service member. You’ll receive your basic pay–the very minimum you earn while serving–but also you will be eligible throughout your military career for advance pay, special pay, and bonuses.
While many service members may draw all of the above, many have unique combinations of these bonuses and other offerings. Some qualify for more money because they must perform hazardous duty, others qualify for certain bonuses because they are professionally fluent in more than one language.
Still others may qualify for special pay because their jobs are in high demand–pilots are just one group of military people compensated more because of special skills.
The first thing we’re examining here is also one of the most common types of military pay above and beyond your basic pay not associated with housing, separate rations, or other entitlements officially known as “allowances”. Allowances are not like special pay and bonuses (see below) in that they are not subject to federal taxes.
Advance pay is not an allowance, but nor is it “special pay” with specific criteria requiring certain conditions to be met such as a re-enlistment, remaining in a specific short-handed career field, etc. Instead, advance pay is something all service members may be entitled to apply for in connection with a permanent change of station move.
Essentially an interest-free loan on your paycheck, you are required to repay the loan with a series of automatically deducted payments (the DoD takes the funds out of your paycheck before you get it) that can stretch over a full year.
Some people believe advance pay is a bad idea, noting that the amount you must pay per month over the repayment year will reduce your monthly cash flow.
Think It Over First
Those already on tight budgets may need to consider that detail before making the plunge. But it’s not always a bad move to take advance pay–an interest-free loan is cost effective if you plan on using the money you are borrowing from yourself wisely.
One such use? Offsetting the expense of relocating to another assignment, especially if you have to move family members.
Some troops are assigned from cities with a typical cost-of-living into a more expensive region. Imagine being reassigned from an Air Force Base in the midwest to one in Southern California. Advance pay could be a big help in making purchases associated with the relocation, getting a vehicle up to emissions standards in the new state, etc.
Advance pay is best when you have a plan and a financial goal to inform your decision to borrow from your own paycheck.
Advance Travel Pay
One type of advance pay is specifically limited to official travel. According to the Department of Defense, advance travel pay is authorized for those who do not yet have a government travel card. Advance travel payments may be authorized for certain allowances including per diem, and the Dislocation Allowance.
This is applicable, “if the Member is not a Government Travel Charge Card (GTCC) holder or an advance is not specifically prohibited in the orders.” Those who do have a government travel card are NOT authorized for such advance travel pay.
If a member is a card holder, the GTCC must be used for PCS travel and advances are not authorized.
Aside from your basic pay and advance pay, many in the Army, Navy, Air Force, Marine Corps, Space Force and Coast Guard may qualify for special pay offered by their branch of service as a retention and recruiting incentive.
For example, troops who pull “hardship duty” may be authorized Hardship Duty Pay, typically offered to those who are assigned overseas in “hardship locations” which, according to the Defense Finance And Accounting Service official site, where living conditions are “substantially below the standard most members in the continental United States would generally experience.”
The DoD has a set of criteria for special pay and there are often minimum time-on-station requirements. For example, for Hardship Duty Pay, the qualifying criteria includes:
- Serving on PCS in a designated area, or serving in a temporary duty or deployed status for over 30 consecutive days in a designated area
- Those who relocate to a designated area as part of a permanent change of station move are eligible from the day of arrival
- Troops who are TDY in such areas are not eligible during the first 30 days of consecutive service at the designated location
Not all special pay has those specific instructions, but it’s easy to see that the DoD prefers specific qualifying duty, dates, and other conditions in order to draw some special pay. Not all special pay is hardship-related. Some is offered for hazardous duty, and some may be offered as an incentive to accept a specific military assignment.
Recruiting and retention is very important in the military, and that is one reason why the DoD offers bonuses to those enlisting or commissioning into critical career fields, and to those who are currently serving with hard-to-replace skills.
When it comes to recruiting bonuses, a new enlistee may earn a bonus for signing up for a specific career field or MOS, but there are also “quick ship” bonuses paid to those who are willing to go to basic training fairly quickly after making the commitment. The U.S. Army Recruiting official site offers qualifying new recruits as much as $12,000 “just for shipping to training within 30 days of enlistment.”
And then there are the “retention bonuses” aimed at those who are already serving with an eye toward keeping them motivated to re-enlist and/or remain in the career field. These service members include pilots, military doctors, linguists, explosive ordnance disposal techs, and many others qualify for these incentives every year.
Qualifying Service Or Service Commitments Required
These bonuses are usually quite specific and don’t apply in an “open/general” way. A good example? You may be allowed to receive a Foreign Language Proficiency Bonus for example, but in most cases you may have to take a test showing your capacity to use other languages professionally.
Others may qualify for a Selective Retention Bonus which is paid to those who agree to re-enlist for a specific qualifying amount of time. These bonuses are usually paid to those in career fields that are difficult to maintain staffing levels for; a good example of this type of pay is offered to Army soldiers in hard-to-fill MOS slots who agree to re-enlist for a minimum of three years.
Such bonuses may be paid in flat-rate, lump sum payments and it’s important to remember that military bonuses are considered income by the IRS and are subject to taxation.
Where To Get Information About Advance Pay, Special Pay, And Bonuses
In some cases, if you qualify for a bonus or for special pay, you’ll be informed by your command support staff–especially if you must test for proficiency pay. The tests required are not optional, and scheduling will be something you’ll need to arrange with your orderly room or the organization responsible for scheduling and processing such tests.
In most cases, the base Finance Office will have all the information you need, but at a higher level the Defense Accounting and Finance Service official site has a wealth of general information about all forms of military pay and the requirements for drawing it.
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News
Filed Under: MoneySours: https://militarybenefits.info/advance-special-pay-bonuses/
The Advance Pay Option: Should You Take the Money and Run?
When making a permanent change of station or PCS, the military allows service members to request an advance of up to three months of basic pay to cover unreimbursed expenses. The question is, should you utilize this option?
"Because advance pay is essentially an interest-free loan, some people see it as a 'Why not?' opportunity," says Scott Halliwell, a Certified Financial Planner™ practitioner with USAA. "But there can be significant downsides. Asking for advance pay should really be a last resort move."
What's the harm?
First off, the advance pay option isn't "free money." It's a loan that must be paid back. Except in extreme cases, you're required to repay the advance in monthly installments over the course of a year, starting the first month after you receive the money.
"If you take the advance, you're committing yourself to a smaller paycheck for the next year," says Halliwell. "That can cause problems when other big expenses pop up after the move."
Already living on a reduced income, military families could find themselves stuck in a dangerous cycle of debt, spending on credit cards or even taking out a new loan while they pay off the original advance.
Does it ever make sense?
While the military provides allowances to help pay for PCS expenses, sometimes the circumstances under which you move can create extraordinary costs. Transportation of people and vehicles, temporary storage of household items and/or delays in securing a new home can cost big bucks — often more than the government reimburses — especially when you have a spouse and children in tow.
"If you're facing unavoidable expenses and you don't have savings to pay for them, the advance pay option could be the best choice," says Halliwell. "Since the debt is interest-free and you're forced to pay it back quickly, it's probably a better option than using a credit card, where the debt could linger for years."
All requests for advance pay must be reviewed and approved by your commander or a higher authority, depending on how much money you apply for. The approval process helps to ensure service members are taking the loan for the right reasons and could require you to provide proof of need. Since there's no guarantee you'll be approved, it's better not to need the money in the first place.
When you join the military, it's all but certain that you'll have to PCS within a few years. "So start saving for it now," says Halliwell.
"Contributing a small amount of money every month to a savings account can add up over time and give you a financial cushion when you need it," he says.
If you're still in a pinch when it's time to PCS, there are other ways to drum up some extra cash. Hold a garage sale, for example, or sell some of your unneeded items online or through newspaper classifieds. Not only will it help pay for moving expenses, it will lighten your load and reduce the cost and effort of transporting your belongings.
As you get established in your new home, Halliwell also suggests using the move as an opportunity to re-evaluate your budget and make changes.
"In a way, PCS allows you to hit the reset button and start over, making better financial decisions," he says. Choosing to live in a less expensive house or apartment, switching to a more economical car or opting out of the 900-channel satellite package can free up cash quickly.
So the next time PCS orders come your way, borrowing money may never cross your mind.
USAA's licensed, salaried financial advisors know the military and know how to help during big moves like PCS. To get free, professional guidance, call a USAA Financial Advisor at 1-800-771-9960.
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