What Is Taxable Income for Active Military?

by Susan Reynolds

Military officers and enlistees, like civilians, are required to pay federal income tax. However, some military pay is not taxed. Service members working in active combat zones might not have to pay taxes on their income. Other war-related circumstances also allow for some income tax exemptions.

Basic Pay

Basic pay is the salary received by active and reserve duty service members. All of this income is taxable income and is reported on a W-2 form. You also must pay taxes on any investments or interest earned during the year. Active-duty pay does not include working in combat zones, which carries special exemptions. Some programs allow service members to file their taxes free of charge.

Combat Pay

No one serving in a combat zone, as specified by the U.S. president, has to pay any taxes on the income earned during his tour of duty. Combat zones are areas where the nation's armed forces are currently in a war zone. Any pay that accrues while a service member is in the hospital for treatment of combat wounds is also exempt from federal taxes. If you served only a few weeks in a combat zone, you can get exemption for those weeks.

Retirement Pay

Military retirees are expected to pay federal taxes on their income. Married couples filing jointly must pay taxes according to their tax bracket, which ranges from 10 percent to 35 percent. Retirees also must pay state taxes if their state requires it. Several states, including Alabama, Ohio and Hawaii, do not require state taxes from military retirees. Tennessee and New Hampshire require residents to pay taxes only on dividends and interest.

Bonuses and Special Pay

Several other types of military pay are exempted from taxes. These include any re-enlistment bonuses, and any money you earned from accrued leave (vacation) during the month you served in a combat zone. You do not have to pay taxes on any awards you earned from submissions during the time you were in a combat zone. Income from post and station theaters, clubs, and other activities are exempt from taxes during the months you served in combat. Some student loan repayments are exempt under certain guidelines.

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