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Military Law - Taxability of Military Pay

  Military Law  -   POSTED: 2007/02/17 01:04

Do you know that there are certain built-in tax advantages for military pay? As a member of the Armed Forces, you receive many different types of pay and allowances. Some of your pay and most of your allowances are excludable from gross income so that they are not subject to tax.

Taxable Gross Income

In general, if you are a member of the Armed Forces, most of your pay is included in gross income for federal income tax purposes and all gross income is taxable. You probably receive basic pay, special pay, bonuses and other payments. All of these are includible in gross income, unless the pay or bonus is for service or re-enlistment while in a combat zone.

Basic pay is the main component military salary. It includes amounts paid as back wages and amounts paid for services performed during active duty, attendance at designated service schools, drills, reserve training and training duty. Special pay is for specific qualifications or events. It includes amounts paid for aviation career incentives, diving duty, foreign duty, hostile fire or imminent danger, medical and dental officers, nuclear-qualified officers and special duty assignment pay. Bonuses may be paid for enlistment or reenlistment. Other payments include accrued leave, personal money allowances paid to high-ranking officers and student loan repayment programs.

Combat Pay Excluded from Taxable Income

Earnings received while in a qualified hazardous duty area or a designated combat zone are excluded from taxable income. This exclusion is unlimited for enlisted members and warrant officers but is limited for other officers. Your pay for an entire month is excluded from taxable income when you spend even a single qualifying day in the combat zone.

If you?re injured in a combat zone and hospitalized, any pay you receive will be excluded for the period of your hospitalization. If you accrue any annual leave for time spent in a combat zone and receive any payment for that leave when you?re discharged from service, that payment is excluded from gross income. Also, any re-enlistment bonus is excluded from taxable income if you re-enlist while in a combat zone.

Nontaxable Allowances and Benefits

Most allowances are not taxed. Allowances are the nontaxable monies authorized for food, housing, clothing, travel and transportation. The most common allowances are Basic Allowance for Subsistence (BAS) and Basic Allowance for Housing (BAH). There are many other types of allowances, such as Overseas Housing Allowance (OHA), Family Separation Allowance (FSA), uniform allowances and meal allowances, that are not taxable.

Benefits received under a dependent-care assistance program are nontaxable. The death gratuity paid to a survivor of a member of the Armed Forces is also nontaxable. Disability retirement pay is excluded from taxable income up to your disability rating. For example, if you are 40% disabled, 40% of your retirement pay will be excluded from taxes. Qualified military benefits are also excluded. These include veteran?s benefits, medical benefits, professional education, moving and storage, group term life insurance and survivor and retirement plan premiums.



 


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