Tax Rules Affecting the Military, Part 1 Non-Taxable Income

Tax season is drawing to an end, and you’ve only got about 2 weeks to complete your taxes before the end of the year. Fortunately, there are several places that provide free tax preparation for military members. If you are looking to do your own taxes, it helps to understand how the military pay system works.

Military pay is confusing. There are a lot of different rules regarding military pay and which benefits, bonuses, and special pays are taxable and which are not. This series of articles will focus on clearing up some of the confusion.

Non-taxable military benefits

By non-taxable, we mean not included in gross income. This list does not include combat tax zone exclusions, as they will be covered in another article. Please keep in mind this is not an all-inclusive list and it is subject to change. Always check with an accountant or your base finance office for further details.

Living Allowances:

  • Basic Allowance for Housing (BAH)
  • Mortgage interest and real-estate taxes remain deductible even if you pay these expenses with your BAH
  • Basic Allowance for Subsistence (BAS)
  • Cost of Living Allowance (COLA) while living overseas
  • Overseas Housing Allowance

Family Allowances

  • Family Separation Pay – paid when separated for official duties
  • Certain educational expenses for dependents

Moving Allowances

  • Permanent Change of Station (PCS) moves
  • Dislocation Allowance
  • Relocation or storage of household goods
  • Mobile home, trailer, or automobile shipment during PCS moves
  • Temporary Lodging Allowance (TLA)
  • Certain Military Base Realignment and Closure Benefits

Death Allowances

  • Burial services
  • Travel of dependents to burial site
  • Death gratuity payments to eligible survivors

In-kind Military Benefits

  • Medical / Dental care
  • Commissary / Exchange discounts
  • Space-available travel on government aircraft
  • Legal assistance / defense counseling
  • Dependent care assistance

Other Non-Taxable Payments and Benefits

  • Disability
  • Professional education
  • ROTC educational and subsistence allowances
  • Uniform allowances
  • Uniforms and issued items

These benefits add up to a lot of money each year, and the fact they are not taxable is just another example of our government looking after its troops. Thanks to each of you who serve.

See these related articles regarding military pay and taxes:

Source: H&R Block

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Date published: March 31, 2008. Last updated: April 8, 2008.

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Ryan Guina is the founder and editor of this site. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is currently serving in the IL Air National Guard. He also writes about money management, small business, and career topics at Cash Money Life. You can also see his profile on Google.

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