Frequently Asked Questions About Military Income Tax

• Just like other U.S. citizens with civilian jobs, military personnel are subject to payment of federal income tax. However, special circumstances apply to citizens who serve in the military, and not all of their payments and allowances are included in their gross income. The IRS document "Publication 3" is a guide for members of the armed forces of the United States. This document answers many questions regarding tax payment for members of the military.

Is My Military Income Taxable?

• As a member of the military service, you receive payments in the form of income and other allowances. All the income you receive that is considered gross income is taxable and needs to be reported on your tax return. However, some incomes that you receive are not taxable. For example, if you receive "combat pay" while you are serving in a combat zone, you do not need to pay taxes on it.

What Do I Consider Part of My Gross Income?

• The basic pay you receive as a military member is considered part of your gross income, and is therefore taxable. According to the IRS, special pays, such as aviation career incentives, foreign duties, hardship duty, optometry, pharmacy and special duty assignment pay are part of your gross income. Bonuses you receive are also taxable. Bonuses for career status, enlistment, oversea extension and reenlistment all count. Incentive pays, such as for submarine service, flight and hazardous duties, and other payments, such as student loan repayments you receive from military programs, personal money allowances paid to high ranking officers and high deployment per diem, are also fully taxable as part of your gross income.

How Does the Combat Zone Exclusion Work?

• If you are a member of the military and serve in a combat zone, you may receive certain payments that you are allowed to exclude from your income and that are therefore not taxable. Publication 3 defines "combat zone" as "any area the President of the United States designates by Executive Order as an area in which the U.S. Armed Forces are engaging or have engaged in combat. An area usually becomes a combat zone and ceases to be a combat zone on the dates the President designates by Executive Order." This includes the Afghanistan area, the Kosovo area and the Persian Gulf area. To qualify for this exclusion, you must have received this pay in a month during which you served in a combat zone or that you were hospitalized because of wounds, disease, or injury caused while serving in a combat zone.

What Payments are Part of the Combat Zone Exclusion?

• If you serve in a combat zone, the active duty pay you earn for that period is non-taxable. Imminent danger fire pay, a reenlistment bonus, pay for accrued leave, pay received for duties as a member of the Armed Forces in clubs, messes, post and station theaters, and other non-appropriated fund activities, awards for suggestions, inventions, or scientific achievements you are entitled to and student loan repayments are all payments you receive that can be non-taxable if they occurred while you were serving in a combat zone. For student loans, if only part of a year of service was performed in a combat zone, only part of the repayment qualifies for exclusion.