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Military Tax Exclusions

There are many tax exclusions military personnel can claim to lower their tax burden each year. Below are the main exclusions that apply and should be considered.

​Compensation for active duty personnel while in a combat zone is not included in gross income. The exclusion for a commissioned officer (other than a warrant officer) is limited, however.

If you have received tax-free combat pay, you can include it as earn income:

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

Other Excludable Income for Military

If you received the income as reimbursement or as an allowance, you do not include that pay as part of your gross income. Some examples are:

Living Allowances

  • Basic Housing Allowance (BAH) — You can deduct mortgage interest and real estate taxes on your home even if you pay those expenses with your BAH
  • Basic Allowance for Subsistence (BAS)
  • Housing and cost-of-living allowances abroad, whether paid by the US government or by a foreign government
  • Overseas Housing Allowance

Family Allowances

  • Emergencies
  • Evacuation to a place of safety
  • Some educational expenses for dependents
  • Separation

Death Allowances

  • Burial services
  • Death gratuity payments to eligible survivors
  • Travel of dependents to burial site

Moving Allowances

  • Dislocation
  • Move-in housing
  • Moving household and personal items
  • Moving trailers or mobile homes
  • Storage
  • Temporary lodging and temporary lodging expenses
  • Military base realignment and closure benefit — This benefit is calculated as 95% of the fair market value of the property before any public announcement of the intent to close all of part of the military installation minus the property’s fair market value at the time of sale)

Travel Allowances

  • Annual round trip for dependent students
  • Leave between consecutive overseas tours
  • Reassignment in a dependent-restricted status
  • Transportation for you or your dependents during ship overhaul or inactivation
  • Per diem

Other Payments

  • Defense counseling
  • Disability, including payments received for injuries incurred as a direct result of a terrorist or military action
  • Group term life insurance
  • Professional education
  • ROTC educational and subsistence allowances
  • Survivor and retirement-protection plan premiums
  • Uniform allowances
  • Uniforms furnished to enlisted personnel

In-kind Military Benefits

  • Dependent care assistance
  • Legal assistance
  • Space-available travel on government aircraft
  • Medical and dental care
  • Commissary and exchange discounts

You CANNOT exclude the value of personal use of a government-provided vehicle.

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