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Special tax benefits for members of the U.S. Armed Services and their families

Members of the military qualify for special tax benefits. For example, some types of military pay are not subject to tax, and special rules could lower the tax owed or allow more time to file and pay taxes.

Servicemembers and their families should be aware of the following tax benefits:

  • Combat pay exclusion: If a military member serves in a combat zone, part or all of their pay is tax-free. This also can apply to military members working in an area outside a combat zone. The Department of Defense will need to certify that the area directly supports military operations in a combat zone. Please note, there are limits to this exclusion for commissioned officers.

  • Other non-taxable benefits: Base allowance for housing (BAH), base allowance for subsistence (BAS), and uniform allowances are government pay items that may be excluded from gross income. This means that these types of payments are not subject to income tax.

  • Moving expenses: Some non-reimbursed moving expenses may be tax-deductible. To deduct these expenses, the taxpayer must (1) be a member of the Armed Forces on active duty, and (2) their move must be done pursuant to a military order or a permanent change of station.

  • Deadline extensions: Some members of the military (such as those who serve overseas) can postpone most tax deadlines. Those who qualify can receive automatic time extensions to file and pay their taxes.

  • Earned Income Tax Credit: Special rules enable military members to include non-taxable combat pay in their taxable income for purposes of claiming tax credits. For example, some might opt to do this solely to increase the amount of their Earned Income Tax Credit (EITC), a tax credit available to individuals with earned income within a certain range. The EITC can significantly reduce one's tax liability or increase one's tax refund.

  • Joint return signatures: Both spouses must normally sign a joint income tax return. However, if military service prevents that from happening, one spouse may be able to sign on behalf of the other or have a power of attorney do so. Service members may want to consult with their installation's legal office to see if a power of attorney is the right option for them.

  • Reserve and National Guard travel: Members of a reserve component of the Armed Forces may be able to deduct their unreimbursed travel expenses on their return. In order to do so, the Reservist must have traveled more than 100 miles away from home in connection with their performance of services as a member of the reserves.

  • ROTC allowances: Some types of income paid to ROTC students in advanced training are not subject to tax. However, active duty ROTC pay is taxable, including pay for summer training.

For more information, see IRS Publication 3 (Armed Forces' Tax Guide).


IRS Tax Tip 2020-93 #IRSTaxTip

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