Federal Tax Exclusions for Military Pay
Combat zone pay, death gratuities, and many military allowances (BAH, BAS) are completely tax-free.
Who qualifies: Active duty, National Guard.
Military members receive significant federal tax advantages:
Always Tax-Free:
• Basic Allowance for Housing (BAH)
• Basic Allowance for Subsistence (BAS)
• Clothing allowances
• Moving/PCS reimbursements
• Most special pays when in a combat zone
Note: Family Separation Allowance (FSA) is taxable income, except when earned in a designated combat zone.
Combat Zone Tax Exclusion (CZTE):
• ALL basic pay and special pays are excluded from federal income tax while serving in a designated combat zone
• Enlisted members and warrant officers: 100% of pay excluded
• Commissioned officers: excluded up to highest enlisted pay + hostile fire pay
• Extends to months partially served in combat zone
Deadline Extensions:
• Tax filing deadline extended 180 days after leaving combat zone
• Applies to IRA contributions as well
State Taxes:
• Many states exempt military pay entirely
• Some states exempt retirement pay
• Check your state's rules with your state Department of Revenue