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Employment Tax Topics

Military Service Member Tax Deductions and Credits

Did you know that as an active-duty member of the military, you’re entitled to a host of special tax considerations? Here’s a list of credits and deductions you might be able to take advantage of.

Military tax deductions and credits

If you are currently serving in the US Armed Forces – the Army, Navy, Air Force, Marines, Coast Guard, and any active reserve unit – you are allowed special tax considerations for certain items and situations.

Taxable and nontaxable income

When it comes to taxable income, there are special rules allowing certain types of pay to be excluded from a service member’s taxable income. The types of income that are taxable are generally referred to as “pay” and include the following:

  • Active duty pay
  • Special pay (aviation, diving, foreign duty, hardship duty, hostile fire or imminent danger, overseas extensions, or special duty assignments)
  • Reserve training pay
  • Bonuses, including those for enlistment, reenlistment, career advancement, or overseas extensions
  • Armed Services academy pay
  • Accrued leave or mustering-out payments
  • Lump-sum payments rendered on separation or release
  • Student loan repayment
  • Incentive pay (submarine, flight, hazardous duty, HALO)

Nontaxable pay for service members is generally referred to as allowance or assistance, and includes:

  • Pay for active service in a combat zone or qualified Hazardous Duty Area
  • Living allowances, like BAH, BAS, and OHA
  • Disability and medical benefits
  • Educational assistance
  • Legal assistance
  • Family separation allowances
  • Temporary lodging
  • Uniform allowances

It’s worth noting some of the nontaxable items listed above might need to be used to calculate certain tax benefits – for example, excluded combat pay is included in your gross income amount when calculating the allowed IRA contributions, and for the Child Tax Credit, Additional Child Tax Credit, Earned Income Tax Credit, and the Credit for Child and Dependent Care expenses.

Nontaxable Combat Pay

Combat pay earned by Armed Forces members is subject to a variety of considerations. For example, your combat pay may be excluded from your taxable income each month – as long as you serve in a combat zone at least one day out of the month. Members serving in Hazardous Duty Areas receive combat zone benefits. This includes any bonuses received or disability pay earned due to an injury while in the combat zone. In fact, tax reform added  duty in the Sinai Peninsula to the Hazardous Duty Areas, if you’ve served there, or will serve there, between June 9, 2015 and January 1, 2026.

Service members who served in the Sinai Peninsula between June 9, 2015 and January 1, 2018 can amend their tax return to claim a refund for taxes paid on this income.

Tip/Help

Those members of the Armed Forces serving on the Sinai Peninsula between June 2015 and January 2026 are entitled to the special combat zone benefits.

Can I claim a deduction for a military move?

Moving for military duty is one of the universal characteristics of Armed Forces service. A move based on orders to a new duty station is referred to as a permanent change of station and remains an allowed exclusion from income for service members only. This means the amount of a move paid for by the military is excluded from income and any unreimbursed allowed expenses may be deducted from income.

Claiming a military tax extension

Claiming an extension for filing a tax return is relatively simple. You can receive an automatic six-month extension by filling out Form 4868. If you are unable to fill out that form, you can still qualify for a two-month extension. If you need time beyond this, you must complete the Form 4868 to request another four months in which to file your taxes. However, taxpayers in a combat zone have an automatic extension of the time in the tax zone and six months after leaving the combat zone.

There are still a great many rules and benefits from serving in the Armed Forces, including combat zone death benefits and extended time for tax relief from home sales. And while tax reform changed some key considerations to military service, most of the rules and benefits for members of the US Armed Forces have remained in place.

Tip/Help

Due to tax reform, only active-duty military members under PCS orders can exclude the moving allowances and expenses from their gross income.

FAQs

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