Tax Rules Affecting the Military, Part 2: Taxable Income

Tax season is always stressful. 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…
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Tax season is always stressful. 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 are rules regarding which of these must be reported to the IRS as income and those which can be excluded.

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 include it as earned income when determining their earned-income credit and additional-child tax credit and for the 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


  • Enlistment and re-enlistment
  • 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 note: 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.

See these related articles regarding military pay and taxes:

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About Ryan Guina

Ryan Guina is The Military Wallet's founder. He is a writer, small business owner, and entrepreneur. He served over six years on active duty in the USAF and is a current member of the Illinois Air National Guard.

Ryan started The Military Wallet in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about personal finance and investing at Cash Money Life.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free Personal Capital account here.

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  1. Mina says

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

    • Ryan Guina says

      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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