Tax Rules Affecting the Military, Part 2 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 know which pay and benefits are taxable, and which are not.

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.

Taxable military benefits

As a military service member, you earn money from several different allowances and benefits, and there rules regarding which of these must be reported to the IRS as income and those you can exclude.

The following items must be included in your reported gross income unless they were earned while you were serving in a combat zone. The good news, is that military taxpayers who receive tax-free combat pay can continue to include it as earned income when determining the Earned Income Credit and Additional Child Tax Credit, and for purposes of making an IRA contribution.

Basic pay





  • Active Duty Pay, Reserve Training, and Guard Drill Pay
  • Attendance at a designated service school
  • Back wages

Special pay

  • Aviation Career Incentive
  • Diving Duty
  • Foreign Duty
  • Medical, Dental, Pharmacy, Optometry, and Veterinarian pay
  • Nuclear-Qualified Officers
  • Special-Duty Assignment pay

Bonuses

  • Enlistment / Reenlistment
  • Officer
  • Career Status
  • Overseas Extension

Other payments

  • High Deployment Per Diem
  • Accrued leave
  • Personal money allowances paid to high-ranking officers
  • Student loan repayment from programs such as the Department of Defense Educational Loan Repayment Program (certain exemptions may occur if you serve in a combat zone during the repayment period).

Please keep in mind this list 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.

See these related articles regarding military pay and taxes:




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Date published: April 3, 2008. Last updated: April 8, 2008.

Article by

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.

Comments

  1. I didn’t get the info…you say allowances are military taxable income,..what about Veterans benefits, retirement pay..not clear

    • Mina, Military pay and benefits are different than veteran pay and benefits. Typically, military retirement pay is taxable income at the federal level, and at the state level for some states (some states either don’t have income tax, or they exempt retirement pay or pensions from state income taxes). VA service-related disability compensation is a non-taxable income.

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