If you are a member of the U.S. Armed Forces, there are tax breaks written just for you. These breaks apply to all regular and reserve units controlled by the Secretary of Defense. Merchant Mariners and American Red Cross employees do not qualify even when in or near a combat zone, although they may qualify for some special war zone rules discussed in a later column. This article contains basic lists of what is and is not included in taxable income. Watch for future articles with details of the important parts of the law.
Income Included in Taxable Pay. Most basic, special, and bonus or incentive pay is taxable. Some of the special pay categories include:
- TDY at school.
- COLA for high cost of living areas. (Cost-of-Living-Allowances)
- Reserve training.
- Special pay for divers, vets, doctors, dentists, optometrists, pharmacists, and foreign duty.
- Reenlistment bonus (unless paid in a combat zone).
- HALO (high altitude/low opening), hazardous duty, and submariners.
- Differential wages are fully taxable wages paid by an employer to an individual called up for active duty for more than 30 days. The pay represents all or part of the amount the individual would have received for services to the employer.
Non-Taxable Excluded Pay. Categories include:
- Combat zone pay (explained in detail later).
- Counseling, professional education, and ROTC educational allowances.
- Uniform allowances and uniforms furnished to enlisted personnel.
- Survivor and retirement protection plan premiums.
- Group-term life insurance.
- Death allowances for burials, death gratuities paid to eligible survivors, and travel to burial site for dependents.
- Family allowances for emergencies, evacuations (to a place of safety), separations, and certain educations expenses for dependents.
Living Allowances. This includes living, travel, moving, and in-kind expenses, such as:
- BAH (Basic Allowance for Housing).
- BAS (Basic Allowance for Subsistence)
- Housing and COLA adjustments while living abroad (paid by the U.S. or a foreign government).
- OHA (Overseas Housing Allowance).
- Moving Expenses: Moving to a new base, dislocation, military base realignment and closure benefit (limited), move-in housing, storage, and temporary lodging expenses.
- Travel Expenses: Annual round trip for dependent students, leave between consecutive overseas tours, reassignment in a dependent restricted status, transportation during ship overhaul, and per diem while travelling.
- In-Kind Benefits: dependent care, legal assistance, medical and dental care, commissary and exchange discounts, and space available travel on government aircraft.
Stay tuned for future columns on employee business expenses, foreign source income, military spouses pay, combat zone pay, special rules for a terrorist attack, and more.
If you need help filing your return,
Intuit’s TurboTax has a separate
program designed for military members.