Tax Tips

What income is taxable and what income may be excluded?

As a military service member, there are specific rules about what you do and do not have to report to the IRS as income.

Military personnel may elect to treat combat pay that is excluded from gross income as earned income in determining both eligibility for the earned income tax credit and the amount of that credit.

The following table identifies income that should be included in, or excluded from, your gross income. 

Military Income Exclusion

• You must report your basic pay from active duty to the IRS.

• Any special pay, including aviation career incentives and diving duty, must also be reported to the IRS.

• Compensation for active service while in a combat zone isn't included in gross income. The exclusion for a commissioned officer – other than a commissioned warrant officer – is limited.
• If you receive tax-free combat pay, you can include it as earned income:

1. When determining the Earned Income Credit (EIC)
2. When determining the additional child tax credit
3. For purposes of making an IRA contribution

Other Excludable Income

Even if you received the income as a reimbursement or an allowance, you don't include this income in your gross income:

• Living Allowances

• Basic Allowance for Housing — However, you can deduct mortgage interest and real-estate taxes on your home even if you pay these expenses with your basic allowance for housing.

• Basic allowance for subsistence

• Housing and cost-of-living allowances abroad, whether paid by the U.S. government or by a foreign government

• Overseas Housing Allowance
  

Thank you for your service to our country!