For servicemembers, the first step to filing taxes is to figure the gross income. Members of the Armed Forces receive many different types of pay and allowances. Some are includible in gross income while others are excludable. Includible items are subject to tax and must be reported on your tax return. Excludable items are not subject to tax, but may have to be shown on your tax return.
Fortunately, servicemembers can exclude many items from gross income. The following is a list of includible and excludable items for gross income for military personnel:
Includible Items
The following items are includible in gross income, unless the pay is for service in a combat zone (where special rules apply). You must include these items when computing your annual gross income.
Basic Pay
- Active duty
- Attendance at a designated service school
- Back wages
- Drills
- Reserve training
- Training duty
Special Pay
- Aviation career incentives
- Diving duty
- Foreign duty (outside the 48 contiguous states and the District of Columbia)
- Hostile fire or imminent danger
- Medical and dental officers
- Nuclear-qualified officers
- Special duty assignment pay
Bonuses
- Enlistment
- Reenlistment
Other Payments
- Accrued leave
- Personal money allowances paid to high-ranking officers
- Student loan repayment from programs such as the DoD Educational Loan Repayment Program, when year's service (requirement) is not attributable to a combat zone.
Excludable Items
The following items are excludable from gross income. The exclusion applies whether the item is furnished in kind or is a reimbursement or allowance.
Housing Allowances
- BAH (Basic Allowance for Housing)
You can deduct mortgage interest and real estate taxes on your home even if you pay these expenses with your BAH.
- BAS (Basic Allowance for Subsistence)
- Housing and cost-of-living allowances abroad whether paid by the U.S. Government or by a foreign government
- OHA (Overseas Housing Allowance)
Moving Allowances
- Dislocation
- Move-in housing
- Moving household and personal items
- Moving trailers or mobile homes
- Storage
- Temporary lodging and temporary lodging expenses
- For more information on excludable moving allowances, see Moving (PCS).
Family Allowances
- Emergencies
- Evacuation to a place of safety
- Separation
Health Expenses and In-kind Benefits
- Medical/dental care
- Defense counseling
- Disability, including payments received for injuries incurred as a direct result of a terrorist or military action
- Group-term life insurance
- For more specific information on the types of medical care that are exempt, go to the IRS's Medical and Dental Expenses.
Education Allowances and Benefits
- Certain educational expenses for dependents
- Professional education
- ROTC educational and subsistence allowances
- For more information on excludable educational benefits, go to the IRS's Tax Benefits for Higher Education.
Death Allowances
- Burial services
- Death gratuity payments (up to $3,000) to eligible survivors
- Travel of dependents to burial site
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
Other Excludable Payments
- Survivor and retirement protection plan premiums
- Uniform allowances
- Uniforms furnished to enlisted personnel
Excludable In-Kind Military Benefits
- Legal assistance
- Space-available travel on government aircraft
- Commissary/exchange discounts
Excludable Special Pay
- Compensation for active service while in a combat zone or a qualified hazardous duty area. Note: Limited amount for officers
For more information on compensation for service while in a combat zone and qualified hazardous area, see Combat Zone Exclusion.
