Taxable vs. Nontaxable Pay & Allowances
Because U.S. military members receive various types of compensation, it is crucial for military families to understand the difference between taxable and nontaxable pay and allowances. A full list of military payment types can be found here:
Taxable Pay
These items are included in gross income, unless the pay is for service in a combat zone.
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Basic Pay - Including active duty, back wages, reserve training, training duty and drills.
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Special Pay - Including aviation career incentives, diving duty, foreign duty, hazardous duty, hostile fire or imminent danger, medical and dental officers, nuclear-qualified officers and special duty assignment pay.
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Bonuses – Enlistment and reenlistment, overseas extension, career status and officer.
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Other Payments – Including 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 when years’ service (requirement) is not attributable to a combat zone.
Non-Taxable Pay & Allowances
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Special Pay – including compensation for active service, while in a combat zone or a qualified hazardous duty area (limited amount for commissioned officers – see “Combat Zone Exclusion” below).
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Living Allowances - basic allowance for housing (BAH), housing and cost-of-living allowances abroad whether paid by the U.S. Government or by a foreign government and overseas housing allowance.
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Family Allowances - certain educational expenses for dependents, emergencies, evacuation to a place of safety and separation.
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Death Allowances - burial services, death gratuity payments to eligible survivors and travel of dependents to burial site.
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Moving Allowances – including relocation, move-in housing, moving household and personal items, moving trailers or mobile homes, storage, temporary lodging and temporary lodging expenses, and military base realignment and closure benefits (see below).
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Travel Allowances – including annual roundtrip for dependent students, leave between consecutive overseas tours, and reassignment in a dependent restricted status, transportation for military taxpayer and dependents during ship overhaul or inactivation and per diem.
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State Benefit Payments - Any bonus payment made by a state or political subdivision to any member or former member of the U.S. uniformed services, or to his dependent, only by reason of the member's service in a “combat zone” as defined under Code Sec. 112(c)(2) shall be treated as a “qualified military benefit” excludable from gross income. (Code Sec. 134(b)(6))
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Other Payments - 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, survivor and retirement protection plan premiums, uniform allowances and uniforms furnished to enlisted personnel.
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In-kind Military Benefits – including legal assistance benefits, space-available travel on government aircraft, medical/dental care and commissary/exchange discounts.