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Taxation for Military Personnel

A member of the Armed Forces receives many different types of pay and allowances. Some of the pay and most of the allowances are excludable from gross income so that they are not subject to tax.


Taxable Gross Income

In general, if you are a member of the Armed Forces, most of your pay is included in gross income for federal income tax purposes and all gross income is taxable. You probably receive basic pay, special pay, bonuses and other payments. All of these are includible in gross income, unless the pay or bonus is for service or re-enlistment while in a combat zone.

Combat Pay Excluded from Taxable Income

Earnings received while in a qualified hazardous duty area or a designated combat zone is excluded from taxable income. This exclusion is unlimited for enlisted members and warrant officers but is limited for other officers. Your pay for an entire month is excluded from taxable income when you spend even a single qualifying day in the combat zone.

Nontaxable Allowances and Benefits

Most allowances are not taxed. Allowances are the nontaxable moneys authorized for food, housing, clothing, travel and transportation. The most common allowances are Basic Allowance for Subsistence (BAS) and Basic Allowance for Housing (BAH). There are many other types of allowances, such as Overseas Housing Allowance (OHA), Family Separation Allowance (FSA), uniform allowances and meal allowances that are not taxable.

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Benefits received under a dependent-care assistance program are nontaxable. The death gratuity paid to a survivor of a member of the Armed Forces is also nontaxable. Disability retirement pay is excluded from taxable income up to your disability rating. For example, if you are 40% disabled, 40% of your retirement pay will be excluded from taxes. Qualified military benefits are also excluded. These include veteran’s benefits, medical benefits, professional education, moving and storage, group term life insurance and survivor and retirement plan premiums.