How Military Taxes Work

Calculating Military Income

Employees of the armed forces can receive myriad types of "pay" that civilians typically don't, but they also earn plain-old cash money. Soldiers take home a set income for their work from which portions are withheld for Social Security and Medicare. That's "basic pay," and in almost all cases, it's included in gross income for taxation purposes [source: Liberty Tax Service].

Some of the other types of taxable income include [sources: IRS,]:

  • Special pay for hostile fire or imminent danger, foreign-language proficiency, medical duty and hardship duty
  • Bonus pay for enlistment, re-enlistment and officers
  • Incentive pay for hazardous, submarine, aviation or HALO duty (HALO stands for high-altitude/low-opening – jumping out of a plane at about 25,000 feet, or 7,620 meters, and opening the parachute at about 3,500 feet, or 1,067 meters)

Student-loan repayments, personal-money allowances for high-ranking officers and accrued-leave payouts are also taxable [source: IRS].

And then there are the exclusions – the cash money, benefits, goods and services not included in gross pay for income-tax purposes. (Some can be included for other purposes. Keep reading.) Some of these nontaxable payments include [source: IRS]:

  • Family allowances, such as for education and evacuation
  • Housing and subsistence allowances
  • Moving and travel allowances
  • Uniform allowances
  • In-kind benefits like medical care, legal assistance, space-available travel on military aircraft and commissary discounts
  • Life-insurance and survivor-benefit plan premiums
  • Disability allowances
  • Death allowances, such as for burial or family travel to the grave site
  • Combat pay (there's a cap for officers)

That last one, combat pay, is noteworthy. Combat pay is the basic active-duty pay earned by soldiers serving in a designated combat zone (see the IRS's list of current combat zones). That means military personnel stationed in, say, Afghanistan, Jordan or Somalia may end up paying almost no income tax at all. Of course, this is the U.S. tax code, so there are some complexities in the rule.