Tax season is always stressful. Fortunately, several places 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 can be complicated. 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.
Table of Contents
- Non-Taxable Military Pay and Benefits
- Living Allowances
- Base Housing and Basic Allowance for Housing (BAH)
- Overseas Housing Allowance (OHA)
- Basic Allowance for Subsistence (BAS)
- Cost-of-Living Allowance (COLA) While Living Overseas
- Family Allowances
- Moving Allowances
- Death Allowances
- In-Kind Military Benefits
- Other Non-Taxable Payments and Benefits
Non-Taxable Military Pay and Benefits
Your base military pay is taxable unless you are deployed to a tax-free combat zone. There are several rules regarding how your pay is taxed in these circumstances. In general, your base pay is tax-exempt if you are enlisted, and if you are a commissioned officer, your pay is tax-exempt up to the amount of the highest enlisted pay grade.
Other than that, your base pay is taxable.
However, certain benefits are considered non-taxable income. By non-taxable, we mean they are not included in gross income. Please keep in mind that this is not an all-inclusive list and is subject to change. Always check with an accountant or your base finance office for further details.
Living Allowances
Base Housing and Basic Allowance for Housing (BAH)
Military members either receive base housing, which is not taxed or a housing allowance to cover the cost of their housing. The housing allowance is called basic allowance for housing (BAH) and is based on the service member’s pay grade, whether or not they have dependents, and local market conditions. This BAH calculator determines your specific allowance. BAH is tax-exempt.
This article covers current BAH rates. BAH is not intended to cover all housing costs. Members who receive BAH can keep the difference if their housing costs are lower than their total BAH payments.
Note: If you itemize your taxes, mortgage interest and real estate taxes remain deductible even if you pay these expenses with your BAH.
Overseas Housing Allowance (OHA)
Service members who serve overseas are also entitled to either military housing or an overseas housing allowance. Like BAH, the OHA is based on the member’s pay grade, whether or not they have dependents and local market conditions. The service member’s OHA is capped by the amount of their rent (in other words, you can’t pocket the difference if your housing allowance is more than your rent).
Basic Allowance for Subsistence (BAS)
The basic allowance for subsistence is a food allowance paid to members who are not eligible to eat in the base dining facilities. This amount is greater for enlisted members than officers. BAS is also tax-exempt.
Cost-of-Living Allowance (COLA) While Living Overseas
Some locations are more expensive to live in than others, which is why the military offers a cost-of-living adjustment to certain military members living in high-cost-of-living locations. COLA is based on location, the member’s pay grade, and whether or not they have dependents.
- Service members who live in high-cost-of-living locations outside the continental United States (OCONUS) may be eligible for OCONUS COLA, which is a non-taxable benefit.
- Some members who live in high-cost-of-living locations in the continental United States (CONUS) are also eligible for CONUS COLA. However, CONUS COLA is taxable.
Family Allowances
- Family Separation Pay – paid when separated for official duties
- Certain educational expenses for dependents, such as the MyCAA education benefit for spouses
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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 the burial site
- Death gratuity payments to eligible survivors
In-Kind Military Benefits
- Medical and dental care
- Commissary and exchange discounts
- Space-available travel on government aircraft
- Legal assistance and defense counseling
- Dependent care assistance
- Morale Welfare and Recreation benefits
Other Non-Taxable Payments and Benefits
- Disability Benefits
- Professional Education, On the Job training
- Tuition Assistance Benefits & GI Bill benefits
- ROTC educational and subsistence allowances
- Uniform allowances
- Uniforms and issued items
- Imminent Danger Pay / Hostile Fire Pay when deployed
- Reenlistment bonuses when the contract is signed in a tax-free combat zone
- Certain benefits for military spouses
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.
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