Key Takeaways:
- Combat pay and certain allowances are tax-free, including Basic Allowance for Housing (BAH), Basic Allowance for Subsistence (BAS), and Overseas Cost of Living Allowances (COLA).
- Active-duty members can deduct specific expenses, such as uniforms, professional gear, and moving costs related to Permanent Change of Station (PCS) orders.
- Combat zone service triggers automatic IRS filing extensions and penalty-free withdrawal options from certain retirement accounts.
- Military families may qualify for valuable credits, including the Earned Income Tax Credit (EITC), Child Tax Credit, and education-related credits.
- Reservists and National Guard members can claim travel and lodging deductions when serving more than 100 miles from home.
- State income tax rules often favor service members, allowing non-resident exemptions and protecting home-state residency under the Servicemembers Civil Relief Act (SCRA).
Military service comes with many sacrifices; and thankfully, the IRS recognizes that with special tax benefits for those who serve. From combat pay exclusions to deductions for moving costs and uniform maintenance, active-duty military members are eligible for a variety of tax breaks that can significantly reduce their overall tax burden.
Understanding these benefits can help ensure that service members and their families don’t pay more than they owe. This guide breaks down everything you need to know about active-duty military tax benefits, including who qualifies, what’s deductible, and how to make sure you claim every advantage available.
Who Qualifies for Military Tax Benefits
Military tax benefits are designed specifically for individuals serving in official capacities under the United States Armed Forces and certain uniformed services. These benefits also extend, in limited cases, to dependents and support personnel serving in combat zones.
Eligible Members of the Armed Forces
According to the IRS, the term “Armed Forces” refers to all active-duty and reserve components of the following branches:
- Army
- Navy
- Air Force
- Marine Corps
- Coast Guard
- Space Force
Members of these branches qualify for most federal military tax benefits, provided they are on active duty, in training, or serving in an official capacity.
Uniformed Services Beyond the Military
Tax benefits aren’t just limited to traditional armed forces. Members of the Commissioned Corps of the U.S. Public Health Service (USPHS) and the National Oceanic and Atmospheric Administration (NOAA), both considered part of the Uniformed Services, may also qualify for many of the same tax exclusions and deductions as active-duty military personnel.
Reservists and National Guard Members
Reservists and National Guard members are eligible for many military tax benefits when performing official duties, particularly when serving more than 100 miles from home. These members often qualify for deductions related to travel, lodging, and mileage when serving on temporary assignments or training.
Spouses and Dependents
Certain tax provisions, such as filing extensions or residency protections, can also extend to spouses of service members, particularly when one spouse is deployed or stationed in a different state. While dependents don’t directly receive tax benefits, claiming them can help maximize available credits like the Child Tax Credit or Earned Income Tax Credit (EITC).
Understanding Military Pay and Taxation
Taxation for active-duty military members differs in several key ways from civilian pay. Understanding what income is taxable and what isn’t, is essential for accurate filing and for maximizing available exclusions.
What Parts of Military Pay Are Taxable
Most base pay for active-duty service members is subject to federal income tax. This includes:
- Basic pay
- Special pay (flight pay, sea pay, etc.)
- Bonus pay (reenlistment or enlistment bonuses)
However, not all income associated with military service is taxable. Some types of pay are specifically excluded under federal law.
Non-Taxable Military Pay and Allowances
Certain allowances are designed to cover the costs of living, housing, and meals during service. The following types of pay are not taxable:
- Basic Allowance for Housing (BAH)
- Basic Allowance for Subsistence (BAS)
- Overseas Cost of Living Allowance (COLA)
- Family Separation Allowance
- Dislocation Allowance (DLA)
- Combat Zone Pay (under certain conditions)
For example, a service member stationed in Germany may receive an Overseas COLA to offset higher living costs. This extra pay is not taxable and does not need to be reported on their tax return.
Combat Pay Exclusion
One of the most significant tax advantages for active-duty personnel is the combat pay exclusion. If you serve in a designated combat zone, any income earned during that period is excluded from federal income tax.
Combat zones are defined by the IRS and designated through executive orders. Examples include parts of the Middle East, such as Iraq, Kuwait, and Syria, as well as certain areas in Africa and Eastern Europe.
Even though combat pay is not taxable, it still counts as earned income for certain tax credits like the Earned Income Tax Credit (EITC). Including this income when calculating EITC can increase your credit amount.
State Income Tax Rules for Active-Duty Service Members
Your state of legal residence determines whether your military pay is subject to state income tax. Many states offer special provisions for active-duty members:
- Some states exempt military pay entirely from income tax.
- Others allow non-resident service members stationed elsewhere to avoid double taxation.
- Under the Servicemembers Civil Relief Act (SCRA), your legal state of residence does not change when you’re assigned to a new duty station.
For instance, if your legal residence is Florida (which has no state income tax) but you’re stationed in California, your military pay remains tax-free at the state level.
Key Tax Deductions for Active-Duty Military
In addition to tax-free income and special exclusions, active-duty members can reduce their taxable income even further through specific deductions related to their service.
Uniform and Gear Expenses
The cost of purchasing and maintaining uniforms can be deductible if the uniforms are not suitable for everyday wear and are required as part of military duty.
This includes expenses such as:
- Uniform purchase and alterations
- Cleaning and maintenance costs
- Required insignia, badges, and protective gear
For example, while dress uniforms might not qualify if they can be worn off duty, specialized combat uniforms and related gear generally do.
Moving Expenses for Permanent Change of Station (PCS)
Service members who move due to a Permanent Change of Station (PCS) are eligible to deduct certain moving expenses. This deduction is available even after the 2017 Tax Cuts and Jobs Act (TCJA) eliminated moving deductions for most civilians.
Qualifying expenses include:
- Transportation of household goods and personal effects
- Travel and lodging costs (excluding meals)
- Storage fees related to the move
If you were transferred from Virginia to Hawaii under official orders, for example, the cost of shipping household items and temporary storage may qualify for deduction.
Reserve Travel Deductions
Reservists traveling more than 100 miles from home for drill or training may deduct mileage, lodging, and meal expenses, even if they don’t itemize deductions. This is considered an above-the-line deduction, meaning it directly reduces taxable income.
Professional and Education Expenses
Expenses related to maintaining or improving job skills, such as courses, certifications, or exams, can sometimes be deducted if they’re required for your current role. However, if you’re using education benefits like the GI Bill, you can’t double-claim those same costs for deductions.
Valuable Tax Credits for Service Members
Tax credits directly reduce the amount of tax you owe, and several credits can significantly benefit active-duty members and their families.
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit is one of the most beneficial credits for qualifying lower- and middle-income taxpayers. Active-duty members can elect to include combat pay as earned income when calculating this credit, even though that income is normally non-taxable.
For example, if a service member earned $30,000 in base pay and $10,000 in combat pay, including that combat pay could increase their total earned income to $40,000 potentially increasing their EITC amount.
Child Tax Credit and Dependent Care Credit
Military families often qualify for the Child Tax Credit (CTC) and Dependent Care Credit, which can help offset the costs of raising children or paying for childcare while one or both parents are deployed or on active duty.
These credits can be especially helpful for families with non-military spouses who maintain employment while the service member is deployed.
Education-Related Tax Credits
The American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC) can help offset education costs for service members or their dependents. While education benefits like the GI Bill are non-taxable, they can sometimes limit eligibility for education-related credits, so it’s important to review IRS Form 8863 and related instructions carefully.
Special Tax Exemptions and Filing Extensions
Serving in the military often means deployments, relocations, and unpredictable schedules. The IRS provides several extensions and exemptions to ensure that service members can meet tax obligations without penalty.
Automatic Filing Extensions for Combat Zones
Service members deployed to combat zones automatically receive extended deadlines for filing returns, paying taxes, and responding to IRS notices. Generally, the extension lasts for 180 days after leaving the combat zone, plus any remaining time that was left to file when deployment began.
For instance, if you had 90 days left to file when you entered a combat zone, you’ll have 270 days (180 + 90) to file after returning. Spouses accompanying service members in combat zones usually qualify for the same extension.
Penalty-Free Withdrawals from Retirement Accounts
Normally, withdrawing funds from a retirement account before age 59½ incurs a 10% early withdrawal penalty. However, military reservists called to active duty for at least 180 days may take penalty-free withdrawals from certain retirement plans, such as IRAs or 401(k)s. Keep in mind that while the penalty is waived, the withdrawal may still be subject to regular income tax unless rolled over into another qualified account.
Filing Tips and Resources for Military Members
Filing taxes as an active-duty service member can be complex, especially when moving between states, serving overseas, or deploying on short notice. Fortunately, there are several free and secure options available.
Free Filing Services for Military Members
- IRS Free File: Offers free federal tax preparation software for those with income below a certain threshold ($84,000 in 2025).
- Volunteer Income Tax Assistance (VITA): Many military bases have VITA offices staffed with IRS-certified volunteers trained in military tax situations.
How to Access Tax Help While Deployed
Service members deployed overseas can file electronically using IRS-approved software, or authorize someone to file on their behalf using Form 2848 (Power of Attorney).
Those stationed in remote locations can contact the IRS through international phone lines or utilize MyPay for quick access to tax documents such as W-2s.
Keeping Documentation Organized
Staying organized can prevent missed deductions or delayed refunds. Important documents to keep include:
- Permanent Change of Station (PCS) orders
- Receipts for moving and travel expenses
- Pay statements showing taxable and non-taxable income
- Proof of service in a combat zone (if applicable)
Creating digital backups of all documentation can also simplify tax preparation, especially for those frequently relocating.
Tax Benefits for Veterans and Transitioning Service Members
When active-duty members transition to civilian life, certain tax rules change; but many benefits remain available, particularly for veterans receiving pensions or disability compensation.
Tax Treatment of Military Retirement Pay
Military retirement pay is generally taxable at the federal level, though some states exempt part or all of it from taxation. Veterans should check their state’s specific laws to determine whether retirement income is taxed.
The Rule of 55
Military members often retire earlier than civilians, and the “Rule of 55” lets you access retirement funds without the 10% early withdrawal penalty. If you leave the military in or after the year you turn 55, you can take money from your Thrift Savings Plan (TSP) or your most recent employer’s retirement account without penalty. This doesn’t apply to IRAs or accounts from previous civilian jobs. For example, a service member retiring at 56 could start TSP withdrawals immediately, though they’d still owe income tax. You don’t have to withdraw right away—the Rule of 55 simply gives the option until you reach 59½.
Disability Benefits and Tax Exemptions
Disability compensation received from the Department of Veterans Affairs (VA) is completely tax-exempt. Additionally, other VA benefits such as specially adapted housing grants and education benefits under the GI Bill are also tax-exempt.
Education and Training for Veterans
Many veterans continue their education using the GI Bill or other federal programs. While these benefits aren’t taxable, veterans who pay out-of-pocket tuition may still qualify for the Lifetime Learning Credit or similar educational incentives.
Navigating taxes as an active-duty service member can feel complex, but understanding your eligibility and available benefits can make a significant financial difference. From combat pay exclusions and PCS move deductions to education credits and filing extensions, the U.S. tax code provides a range of protections and advantages for those who serve.
Frequently Asked Questions
What military expenses are tax deductible?
Active-duty service members can deduct expenses directly related to their service, such as uniform maintenance, travel for drills or training, and moving costs for a Permanent Change of Station (PCS). Reservists may also claim mileage and lodging expenses when traveling over 100 miles for duty.
How to maximize military tax returns?
To maximize your military tax return, claim all eligible deductions and credits; such as PCS moving costs, education credits, and the Earned Income Tax Credit (EITC). Include combat pay as earned income when it increases your EITC, and use free military tax filing programs like MilTax or IRS Free File to ensure accuracy.
Do active-duty military members pay state income tax?
Active-duty service members generally pay state income tax based on their legal residence, not their duty station. Under the Servicemembers Civil Relief Act (SCRA), their home-state residency remains protected even when stationed elsewhere.
Is combat pay considered taxable income?
Combat pay is excluded from federal income tax if earned in a designated combat zone. However, service members can choose to include it as earned income to increase eligibility for certain credits like the Earned Income Tax Credit (EITC).
Tax Help for Active Duty-Military
By keeping accurate records, taking advantage of free filing resources, and staying informed about updates to military tax laws, service members and their families can ensure they receive every tax benefit they’ve earned through their dedication and service. Optima Tax Relief is the nation’s leading tax resolution firm with over $3 billion in resolved tax liabilities.
If You Need Tax Help, Contact Us Today for a Free Consultation