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Active Service Military Tax Exemption

Posted by on May 15, 2013
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Active Service Military Tax Exemption

Some military income is excluded from taxes, but the rest you must include in gross income

You don’t get to exclude all of your income from tax just for being active duty in the military.

However, the IRS does allow you to exclude certain types of military income from gross income, which means you don’t have to pay tax on it. The rest is included in gross income and you do have to pay tax on it.

Excluded from gross income

The following items are excluded from gross income and are not taxable.

  • Combat zone pay

    • compensation for active service while in a combat zone (the excluded amount is limited for officers)

  • Other pay

    • defense counseling

    • disability, including payments received for injuries incurred as a direct result of a terrorist or military action

    • group-term life insurance

    • professional education

    • ROTC educational and subsistence allowances

    • state bonus pay for service in a combat zone

    • survivor and retirement protection plans premiums

    • uniform allowances

    • uniforms furnished to enlisted personnel

  • Death allowances

    • burial services

    • death gratuity payments to eligible survivors

    • travel of dependents to burial site

  • Family allowances

    • certain educational expenses for dependents

    • emergencies

    • evacuation to a place of safety

    • separation

  • Living allowances

    • BAH (Basic Allowance for Housing)

    • BAS (Basic Allowance for Subsistence)

    • housing and cost-of-living allowances abroad paid for by the U.S. Government or by a foreign government

    • OHA (Overseas Housing Allowance)

  • Moving allowances

    • dislocation

    • military base realignment and closure benefit (the exclusion is limited as described above)

    • move-in housing

    • moving household and personal items

    • moving trailers or mobile homes

    • storage

    • temporary lodging and temporary lodging expenses

  • Travel allowances

    • annual round trip for dependent students

    • leave between consecutive overseas tours

    • reassignment in a dependent restricted status

    • transportation for you or your dependents during ship overhaul or inactivation

    • per diem

  • In-kind military benefits

    • dependent-care assistance program

    • legal assistance

    • medical/dental care

    • commissary/exchange discounts

    • space-available travel on government aircraft

One of the biggest categories of pay that is excluded from gross income is combat zone pay. There are currently three general combat zones: the Arabian Peninsula, the Kosovo area, and Afghanistan. Refer to the IRS site for more information on combat zones.

Included in gross income

The items that are included in gross income are

  • Basic pay

    • active duty

    • attendance at a designated service school

    • back wages

    • CONUS COLA

    • drills

    • reserve training

    • training duty

  • Special pay

    • aviation career incentives

    • career sea

    • diving duty

    • foreign duty

    • foreign language proficiency

    • hardship duty

    • hostile fire or imminent danger

    • medical and dental officers

    • nuclear-qualified officers

    • optometry

    • pharmacy

    • special compensation for assistance with activities of daily living (SCAADL)

    • special duty assignment pay

    • veterinarian voluntary separation incentive

  • Bonus pay

    • career status

    • enlistment

    • officer

    • overseas extension

    • reenlistment

  • Other pay

    • accrued leave

    • high deployment per diem

    • personal money allowances paid to high-ranking officers

    • student loan repayment from programs such as the Department of Defense Educational Loan Repayment Program when year’s service (requirement) is not attributable to a combat zone.

  • Incentive pay

    • submarine

    • flight

    • hazardous duty

    • high altitude/low opening (HALO)

Be sure to take note of this important distinction between income that’s included and income that’s excluded from gross income when you file your taxes, as it can make a big difference in your tax bill or refund.

 Photo via DVIDSHUB on Flickr.

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