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Military Benefits

Tax Advantages for the Military

2022-03-30

Each year in mid-April, taxes are due. If you are in the military, there are several places you can go for free tax assistance, such as Military One Source. No matter who you turn to for tax help, it is important to know for yourself what tax advantages are available for you.

Active Duty Tax-Free Opportunities

Part of your pay, including BAH and BAS, is tax-free, which reduces your overall taxable income.

Though TCJA took away the ability to deduct unreimbursed moving expenses, military can still file for deduction for PCS moves. Also what the DOD reimburses you for you can exclude from your taxable income.

More information on travel reimbursement.

Household Goods (HHG) Shipments

Your HHGexpenses for your first 30 days of lodging and transportation for en route travel can also be excluded from your taxable income. I suggest referencing the Armed Forces Tax Guide, because this can get very nuanced. 

Combat Zones

When you are deployed to a tax exempt combat zone, your contributions to your traditional TSP are tax-free; the growth is taxed at withdrawal. If you are in a tax-exempt combat zone, your contributions to your ROTH TSP are tax-free, and so are the earnings. See the chart for a better understanding.

Under Combat TSP exemption

Type Taxed When Earned Tax When Withdrawn Growth Taxed When Withdrawn
Roth TSP No No No
Traditional TSP No No Yes

Under Normal TSP

Type Taxed When Earned Tax When Withdrawn Growth Taxed When Withdrawn
Roth TSP Yes No No
Traditional TSP No Yes Yes

Combat Zone Pay

Servicemembers who are in a combat zone also receive the have a benefit of tax- free income. This includes base pay, imminent danger pay, hostile fire pay, bonuses, pay for accrued leave, and student loan repayments. For enlisted soldiers and warrant officers, your entire pay will be tax exempt. For Officers, income over the amount of base pay of your highest- ranking enlisted service member remains taxable is still in your taxable income.

If you are deployed to a combat zone, you could qualify for a 180-day extension to file your taxes.

Veterans Who Have Retired or Separated from Active Duty

In some states, Veterans who are 100% disabled, there is a property tax exemption.

There are also some states that do not tax military pensions or they only partially tax military pensions (including SBP) .

VA Disability Compensation is tax-free and is not included in Gross Income. Therefore, it does not affect your adjusted gross income (AGI) or your modified adjusted gross income (MAGI).

Surviving Spouses

If you have an eligible dependent who is receiving Dependency Indemnification Compensation (DIC), this income receives the same tax treatment as VA Disability Compensation.

And, of course, you can file your taxes free through organizations like Military One Source if you are Active-duty servicemembers, spouses, and dependent children of the eligible servicemembers. Members of the National Guard and reserve — regardless of activation status. Retired and honorably discharged service members, including Coast Guard veterans, within 365 days of their discharge. Additionally, some bases have a tax office on post that provides free tax assistance.