Do Soldiers Have to Pay Taxes on Military Pay?

Soldiers do pay taxes on military pay, but only on part of it. Basic pay and most bonuses are taxed like any civilian wages, while allowances for housing and food, combat zone earnings, and VA disability compensation are excluded from federal income tax entirely. That’s why a service member whose Leave and Earnings Statement shows $60,000 in total compensation might report closer to $40,000 in taxable income.

What Gets Taxed

Basic pay is fully taxable. Federal income tax is withheld from every paycheck, and FICA takes another 6.2% for Social Security and 1.45% for Medicare.¹ Special pays and bonuses, including enlistment and reenlistment bonuses, are generally taxable as well. The one large exception is any of that money earned while serving in a combat zone.

What’s Tax-Free

Allowances that qualify as “qualified military benefits” are excluded from gross income under federal law.² The two biggest are:

Basic Allowance for Housing (BAH). Paid when government quarters aren’t provided. The IRS and Treasury have confirmed that BAH, including supplemental BAH, is not taxable.³
Basic Allowance for Subsistence (BAS). Offsets food costs and is excluded from federal and state income tax and from Social Security and Medicare.¹

Clothing and uniform allowances fall under the same exclusion.² If you spend more on required uniforms than the allowance covers, the excess can be deductible, but only for uniforms you’re prohibited from wearing off duty.

PCS Moves

Active-duty members remain one of the few groups who can exclude or deduct moving costs. Government-provided moving and storage on a Permanent Change of Station is not income. Dislocation allowances, temporary lodging expenses, and move-in housing allowances are also excluded.⁴ If your actual costs exceed reimbursement, you can deduct the difference on Form 3903 whether or not you itemize.⁵ If reimbursement exceeds actual expenses, the excess should appear as taxable wages on your W-2.

Combat Zone Pay

Pay earned while serving in a designated combat zone is exempt from federal income tax under 26 U.S.C. § 112. The exclusion applies for any month during any part of which you served in the zone. A single day of qualifying service in a month makes that entire month’s pay tax-free.⁶

The rules split by rank. For enlisted members and warrant officers, all compensation for the month is excluded; commissioned warrant officers are treated as enlisted for this purpose.⁷ For commissioned officers, the exclusion is capped at the highest enlisted pay rate plus any hostile fire or imminent danger pay for that month.⁶

The exclusion also covers members hospitalized for wounds, disease, or injury incurred in a combat zone, for up to two years after combatant activities in the zone end.

Recognized zones as of 2026 include the Arabian Peninsula area (Iraq, Kuwait, Saudi Arabia, and surrounding waters), the Afghanistan area (including direct support countries such as Jordan, Djibouti, and Somalia), the Kosovo area, and the Sinai Peninsula.⁸ Service members performing duty in direct support of operations in a designated zone can also qualify if they receive hostile fire or imminent danger pay.⁷

One quirk worth knowing: excluding combat pay can shrink your Earned Income Tax Credit. The IRS lets you elect to include nontaxable combat pay in earned income for EITC purposes while still keeping it out of your actual taxable income.⁹ For lower-ranking enlisted members with families, running the numbers both ways is worth the few minutes.

State Taxes and Legal Residence

Your state tax bill depends on your state of legal residence, not where you’re currently stationed. The Servicemembers Civil Relief Act says military compensation is not treated as income earned in a state where you’re serving under orders, unless you’re actually a resident of that state.¹⁰ A soldier from Texas stationed in California pays no California income tax on military pay.

Legal residence stays where it was when you entered service unless you take deliberate steps to change it: registering to vote, getting a driver’s license, filing DD Form 2058 with finance. Roughly a dozen states have no income tax or fully exempt active-duty military pay, which is why domicile selection is one of the most common tax planning moves in the military community.

Retirement Pay and VA Disability

Military retirement pay is generally taxable as ordinary income. Federal tax is withheld based on the W-4 you have on file with DFAS, and the total shows up on a 1099-R. Survivor Benefit Plan premiums reduce taxable retired pay because they come out pretax; SBP annuity payments to a survivor are taxable.

VA disability compensation is different. It’s completely tax-free at both the federal and state level, including standard disability compensation, Dependency and Indemnity Compensation to survivors, and Special Monthly Compensation.¹¹ For retirees receiving both, Concurrent Retirement and Disability Pay is taxable retired pay and appears on your 1099-R, while Combat-Related Special Compensation is generally treated as tax-free like VA disability.

On the state side, a large majority of states now fully exempt military retirement pay, and several others offer partial exemptions.

Filing Deadlines

April 15 still applies, but two automatic extensions exist. Stationed outside the United States and Puerto Rico on the regular due date? You get an automatic two-month extension to June 15. Attach a statement explaining that you qualified. Interest still accrues on unpaid tax from April 15, but no late-filing penalty applies during the extension.¹²

Combat zone service goes further. Your deadline to file and pay is extended for the full time you serve in the zone, plus 180 days after leaving, plus whatever days remained before the original deadline when you entered. No interest or penalties accrue during that period.¹³ For someone who enters a combat zone in March, the total can easily exceed a year.

Where to Get Free Help

MilTax, offered through Military OneSource, provides free tax preparation software built around military situations: PCS deductions, combat pay exclusions, and multi-state filing. Free consultations with trained tax consultants are also available. Eligibility covers active-duty members, families, survivors, and veterans within 365 days of separation or retirement, and up to five state returns are included at no charge.¹⁴ On-base tax centers during filing season and IRS Volunteer Income Tax Assistance sites are other free options.¹⁵ Between these, there’s rarely a reason for a service member to pay for tax preparation.

1
Military Compensation and Financial Readiness. Tax Exempt Allowances
2
Office of the Law Revision Counsel. 26 U.S. Code 134 – Certain Military Benefits
3
Internal Revenue Service. Treasury, IRS: Supplemental Basic Allowance for Housing Payments to Members of the Military Are Not Taxable
4
Internal Revenue Service. 2025 Instructions for Form 3903 – Moving Expenses
5
Internal Revenue Service. Topic No. 455, Moving Expenses for Members of the Armed Forces and the Intelligence Community
6
Office of the Law Revision Counsel. 26 USC 112 – Certain Combat Zone Compensation of Members of the Armed Forces
7
eCFR. 26 CFR 1.112-1 – Combat Zone Compensation of Members of the Armed Forces
8
Internal Revenue Service. Combat Zones Approved for Tax Benefits
9
Internal Revenue Service. Updates to Publication 3 Regarding the Nontaxable Combat Pay Election
10
Office of the Law Revision Counsel. 50 USC 4001 – Residence for Tax Purposes
11
Veterans Benefits Administration. Compensation
12
Internal Revenue Service. U.S. Citizens and Resident Aliens Abroad – Automatic 2-Month Extension of Time to File
13
Internal Revenue Service. Extension of Deadlines – Combat Zone Service
14
Military OneSource. MilTax: Free Tax Filing Software and Support
15
Internal Revenue Service. Get Free Tax Prep Help