Tax Help for Military Members and Veterans

Like any occupation, you will be taxed for the income you earn during your time as a member of the Armed Forces. However, due to the hazardous nature of the job, and because you are serving your country and your government, there are numerous tax exemptions, exclusions, and specific rules for filing your taxes as an Armed Forces service member, veteran, or reservist.

In this guide, we’ll provide you with information on how to file your taxes as a member of the military. If you need clarification on any tax issue, you should refer to the Internal Revenue Service’s website and their guide on taxes for members of the military and their families. We will also provide links to important sections of the IRS website throughout the guide.

I. Tax Basics for Service Members

Certain portions of your military income must be included when you file your taxes, while other portions of income may be excluded — that is, they are not subject to tax. The difference between these two types of income depends on a variety of circumstances, including whether or not you were in a combat zone. These exclusions and inclusions can greatly affect the type of income tax credits you qualify for.

Declaring some or all of your nontaxable income may allow you to earn a larger tax credit, which could potentially lower your taxes and earn you a larger refund. Check with the IRS website’s guide for Armed Forces service members before declaring any nontaxable income.

Members of the Armed Forces must file taxes like any other worker, generally via a W-2 or 1040 form. Please refer to our General Tax Guide for a more detailed description of how to file individual income taxes.

Essential Tax Terms

Before we get into the tax guidelines and benefits that pertain to military service members, we’ll review some essential vocabulary.

Armed Forces – The term “Armed Forces” refers to officers and enlisted personnel in all regular and reserve units under the command of the Secretaries of Defense, Army, Navy, Marine Corps, Air Force, and Coast Guard. The term does not include the Merchant Marines or the American Red Cross, but support personnel working in a combat zone may be eligible for certain exemptions, exclusions, and extensions as well.

Combat Zone – A combat zone is an area designated by the President in which Armed Forces are or have been engaging in combat. Armed Forces service members earn untaxed income when working in a combat zone.

Combat zones also includes a number of other areas where Armed Forces service members may be stationed to provide support to forces in the specific combat area. Service members earn untaxed combat zone pay in these support areas as well. You can see a list of combat zones on the IRS website.

Active vs. Veteran Status – Active members of the military file their taxes differently than veteran or retired members of the military. You are an active member of the Armed Forces if you are currently serving as your full-time occupation. For tax purposes and the purposes of this guide, you are a veteran if you have served a minimum of 24 months of continuous service and have been discharged from the military with anything other than a “dishonorable” status. To learn more about veteran eligibility, see this report from the Congressional Research Service.

Allowances – A tax allowance is a sum that can be deducted from your taxable income. For more information on allowances and the basics of filing your taxes, refer to our General Tax Guide.

Tax Deadlines and Extensions

Taxes for all U.S. citizens, including military members, must be postmarked by April 15th of each year or the next business day. However, since military members may be overseas or may be serving in a hazardous combat zone, they are eligible for certain extensions of deadlines. You may be eligible for extensions if you:

  1. Serve in a combat zone
  2. Serve in the Armed Forces outside of the U.S., away from your permanent duty station in a contingency operation; to learn more about contingency operations, please see the IRS website
  3. Spent time in a “missing status,” such as missing in action or as a prisoner of war
  4. Are support personnel (including Red Cross personnel, accredited correspondents, etc.)
  5. Are spouses of Armed Forces service members serving active duty in combat zones or contingency operations, with two exceptions

If you qualify for an extension, your deadline for taking action with the IRS (such as filing your taxes) is extended for 180 days after:

  • The last day you are in a combat zone or serve in a contingency operation
  • The last day of any continuous qualified hospitalization for an injury you sustained during service in a combat zone or during a contingency operation

On top of these 180 days, your deadline is extended by how many days were left before you had to take action with the IRS before you started your duty in a combat zone or contingency operation.

You can learn more about filing extensions on the IRS website. You can also notify the IRS about combat zone duty via email. Emails to the combatzone@irs.gov should include your name, stateside address, date of birth, and date of deployment in the combat zone. Do not include your Social Security Number in the email.

II. Tax Relief for Active Duty Members

Members of the armed service have unique tax situations and are thus entitled to special tax relief programs and considerations. As mentioned, these special tax conditions mostly expand the different ways in which combat pay can be declared on a soldier’s income tax return.

Earned Income Tax Credit (EITC)

Earned Income Tax Credits are federal income tax credits for low-to-moderate income working individuals and families. The credit is refundable meaning that it can actually generate a refund if you do not have any taxes to pay.

The EITC is one of the most valuable and highly used credits available to lower income taxpayers. Nearly 30 million Americans claim the credit each year, receiving an average income tax break or refund of $2,190.

Since this credit is intended to support the working middle class, you cannot claim the EITC if you exceed certain income caps. Even if you make less than the income cap, credit you’re entitled to will vary depending on the number of children you have and the total taxable wages you make. For instance, if your income fell under these 2012 income caps, you were eligible for the EITC:

Qualifying Children Income Cap for Singles Income Cap for Married Couples Filing Jointly Maximum Credit Value
0 $14,340 $19,680 $487
1 $37,870 $43,210 $3,250
2 $43,038 $48,378 $5,372
3+ $46,227 $51,567 $6,044

Members of the Armed Services have an easier time qualifying for the EITC because some forms of military income are non-taxable and don’t need to be included as part of the filer’s total income. Non-taxable military income can include pay earned:

  • During service in a combat zone
  • As part of basic allowances for housing (BAH)
  • As part of basic allowances for subsistence (BAS)

Until you exceed the income cap, the more income you declare, the higher your earned income credit will be. This is why the IRS allows certain groups, including Armed Service members, to declare non-taxable items as “income” for the purposes of this credit.

This is an excellent benefit because it enables you to claim a tax credit on a tax-free income. Service members should calculate their credit in different ways before they decide how much income to declare. The IRS provides an EITC Assistant tool to help you determine your eligibility and explore ways to maximize your credit.

Generally, if you are not eligible for nontaxable income, you cannot take advantage of special service member EITC rules. You can read more about these EITC Rules and how to use them when filing with or for a spouse here.

Combat Zone Provisions

If you serve in a combat zone, the military pay you earn while serving in that combat zone is excluded from your gross income for tax purposes. That means your pay earned during this period is effectively tax-free.

There are some limits, however. Nontaxable income is capped at the highest enlisted pay level plus hostile fire or imminent danger pay, which is then added on to your salary. Combat pay exclusions are only available for service members who are on active duty or who are recovering from injuries sustained while on active duty.

For a list of combat zones, please click here and for more information about Combat Zone provisions and exclusions, please see this Q&A from the IRS.

Military Family Tax Relief Act

Passed in 2003, the Military Family Tax Relief Act created the following tax breaks for military personnel.

  • Death Benefits. Death gratuity paid to survivors is $12,000 and is nontaxable. This gratuity is effective for deaths occurring after September 10, 2001.
  • Sale of Principal Residence. Suspends the five-year ownership-and-use period prior to the sale of a residence. For a more detailed look at this provision, please see the IRS website.
  • Deduction for Overnight Travel Expenses of National Guard and Reserve Members. Reservists who report for service and stay overnight at a place that is more than 100 miles away from their residence may deduct unreimbursed travel expenses, such as gas, food, and lodging.
  • Department of Defense Homeowners Assistance Program. Payments made via this program after November 11, 2003 are excludable from gross income.
  • Combat Zone Extensions Expanded to Contingency Operations. As of November 11, 2003, extensions given to service members in a combat zone are also granted to personnel serving in a contingency operation.
  • Dependent Care Assistance Programs. Dependent care assistance programs for military personnel are excludable benefits.
  • Military Academy Attendees. Please see the IRS website for a more detailed description.

Service Members Civil Relief Act (SCRA)

The SCRA protects service members from being the target of civil actions in the area of financial management (e.g. being sued regarding mortgage payments) while in active duty. You can use the SCRA website to file requests that will verify your active duty. If you are an Armed Forces service member on active duty, you are protected by the SCRA. Retired or veteran service members are not protected under the SCRA.

III. Education Tax Benefits

Many military service members enter the Armed Forces to pay for and/or gain access to higher education. The Armed Forces provide numerous educational benefits for active, retired, and veteran members, including the GI Bill and scholarships.

Below, you’ll find a few of the most notable scholarships and tax benefits. This is by no means a comprehensive list, so you are strongly encouraged to research and find the educational package that’s most advantageous to you.

For Service Members or Veterans in School

Regular Student Tax Benefits

If they qualify, student service members can claim regular student tax benefits, such as American, Lifetime, and other deductions. Under these tax programs, students earning under a specific amount may qualify for a credit that they can put against their annual taxes. Please refer to the Student Tax Guide for a more in-depth look at these particular tax benefits.

Reserve Officers Training Course (ROTC)

The ROTC is a training course for officers based in colleges around the country. Each branch of the Armed Forces has its own ROTC program, and each has a set of eligibility standards. Typically, you must have at least a 2.5 GPA, be a U.S. citizen, and pass certain physical tests.

The financial support ROTC members receive during their training program is nontaxable. That includes books, tuition assistance, and monthly stipends. However, most ROTC programs include weekend and summer programs. ROTC members are paid for these weekend and summer programs, but income earned during these times is not tax exempt, so it must be included in that member’s gross income for tax purposes.

Check with your college campus’ ROTC program to see if you are eligible. If an individual elects to complete the ROTC program at their school, he or she may receive a scholarship or other financial assistance to pay for tuition. Upon completion of the ROTC program, the individual enlists in the Armed Forces as an active or reserve member.

GI Bill

Since 1940, the GI Bill has provided financial assistance to veterans with honorable discharges who are pursuing a college degree. The GI Bill has been updated numerous times, most recently as the “Post-9/11 GI Bill.” The financial aid from the GI Bill is nontaxable and does not need to be declared as part of your income.

Under the Post-9/11 GI Bill, veterans who served an aggregate of 36 months after September 10, 2001 are eligible for financial assistance. This includes Reservists and National Guard members, and the required number of service days is reduced to 30 if you were discharged from duty because of a service-connected disability.

Family members are not eligible for the GI Bill, but a dependent of a service member may be eligible if that service member has served the 36-month aggregate, or has served at least 30 days and was honorably discharged with a service-related disability.

The benefits of the GI Bill are based on a tiered system. Longer terms of service incur more benefits, which may be used for undergraduate or graduate studies. To learn a bit more about the GI Bill, and what the benefits look like, visit the Veteran Affairs website.

Montgomery GI Bill

Like the general GI Bill, the Montgomery GI Bill provides tuition assistance for members of the Armed Forces. There are two version of the Montgomery GI Bill:

  • The Montgomery GI Bill-Active Duty: Active service members in this program pay $100 a month for a period of 12 months and then receive tuition assistance after a period of active service.
  • The Montgomery GI Bill-Selected Reserve: Reservists who are actively drilling and have a six-year obligation to the selected reserve may receive tuition assistance under this program.

The assistance you receive via either Montgomery GI Bill is nontaxable, and does not need to be declared as part of your income.

Military Tuition Assistance

Like the GI Bill and Montgomery GI Bill, this financial assistance is nontaxable, and does not need to be declared as part of your income. Military tuition assistance provides financial aid to members of the Armed Forces. Each branch of the US Armed forces has its own program of tuition assistance. Benefits from this program are generally capped at $4,500 for the fiscal year. Active members of every branch of the Armed Forces are eligible, as are many reserves. For a complete look at who is eligible, see this website.

For Military Family Members in School

In addition to helping members of the military pay for their tuition, the U.S. government also helps military spouses and family members get an education. Below are a few tax benefits available to dependents of an Armed Forces service member.

Military Spouse Career Advancement Account (MyCAA)

Under this program, spouses of military members may receive a maximum financial benefit of $4,000, with a fiscal year cap of $2,000, to put toward their education. You can learn more about MyCAA via this FAQ (PDF).

  • Eligibility: A military spouse’s sponsor (the military member) must be on Title 10 orders, and the spouse must complete their program of study within three years from the start date of the first course.
  • Tax Benefit: Like funds from the GI Bill, the MyCAA is not taxable and does not need to be declared as income.
  • Limitations: $4,000 maximum, $2,000 maximum per fiscal year.

GI Bill Transferability

If a service member has served for six years and agrees to serve for four more years, he or she may transfer their unused GI Bill credits to a dependent, like a spouse or child. See this fact sheet (PDF) for more information on GI Bill Transferability.

  • Eligibility: See above; the Department of Defense will ultimately decide whether each transfer of GI Bill benefits is appropriate, and Armed Forces service members must apply to transfer these benefits.
  • Tax Benefit: Funds from the GI Bill are nontaxable, and do not count as income.

IV. Tax Benefits for Veterans

As long as an individual was released from military duty as anything other than “dishonorable,” that person is a veteran. However, for the purposes of many tax benefits and credits, a “veteran” is specifically someone who has served at least 24 continuous months in active duty, and who is released with something other than a “dishonorable” status upon discharge.

Federal Tax Benefits

There are a number of tax benefits available to veterans and their families at the federal level. These benefits include life insurance to compensation for disability, dependency and indemnity, and special monthly compensation, among others.

Retirement pay for military service must typically be declared as taxable income. However, disability pay for Veterans is nontaxable, and should not be declared on your taxes. Several of the many Federal benefits offered by the VA are included below.

  • Disability Compensation – Disability compensation is tax-free, and is contingent on your status as a ‘disabled veteran,’ as determined by the VA. Generally, you are eligible if your disability arose during service, was worsened or intensified during service, or is deemed by the VA as a direct result of your service.
  • Pension – A pension is a tax-free benefit paid to wartime veterans with limited or no income who are 65 years of age or older, or who are permanently disabled because of a non-service related incident or cause.
  • Education and Training – Listed above, benefits like the GI Bill are tax-free and can help pay for undergraduate and graduate education.
  • Services for Dependents and Survivors – Listed in more detail below, the VA offers a number of benefits for surviving loved ones and dependents:
    • Monthly stipends paid to a surviving spouse. The deceased service member must have died during active service or from a service-related incident or condition
    • A survivor’s pension paid to low-income surviving spouse and children of a deceased veteran with wartime service.

You can learn more about Federal benefits available through the VA in this Benefits Fact Sheet (PDF). To learn more about the tax status of certain veterans benefits, please see this section on the IRS website.

State Tax Benefits

Each state maintains its own Veteran Affairs office. It’s in your best interest to connect with your state’s VA office, as each state may offer unique tax benefits to veterans. Below, you’ll find a links to each state’s VA office, along with links to their benefits and contact pages. Keep in mind, however, even if you are a resident of the state, that does not mean you are automatically qualified to receive their VA benefits.

Alabama Benefits Contact
Alaska Benefits Contact
Arkansas Benefits Contact
Arizona Benefits Contact
California Benefits Contact
Colorado Benefits Contact
Connecticut Benefits Contact
Delaware Benefits Contact
Florida Benefits Contact
Georgia Benefits Contact
Hawaii Benefits Contact
Idaho Benefits Contact [Not Listed]
Illinois Benefits Contact
Indiana Benefits Contact
Iowa Benefits Contact
Kansas Benefits Contact
Kentucky Benefits Contact
Louisiana Benefits Contact
Maine Benefits Contact
Maryland Benefits Contact
Massachusetts Benefits Contact
Michigan Benefits Contact
Minnesota Benefits Contact
Mississippi Benefits Contact
Missouri Benefits Contact
Montana Benefits Contact
Nebraska Benefits Contact
Nevada Benefits Contact
New Hampshire Benefits Contact
New Jersey Benefits Contact
New Mexico Benefits Contact
New York Benefits Contact
North Carolina Benefits Contact
North Dakota Benefits Contact
Ohio Benefits Contact
Oklahoma Benefits Contact
Oregon Benefits Contact
Pennsylvania Benefits Contact
Rhode Island Benefits Contact
South Carolina Benefits Contact
South Dakota Benefits Contact
Tennessee Benefits Contact
Texas Benefits Contact
Utah Benefits Contact
Vermont Benefits Contact
Virginia Benefits Contact
Washington Benefits Contact
West Virginia Benefits Contact
Wisconsin Benefits Contact
Wyoming Benefits Contact

V. Tax Benefits for Dependents & Survivors

To honor those who have died during their service to their country, the VA has created a number of tax benefits for the survivors (spouses and children) of fallen Armed Forces Members.

Dependency and Indemnity Compensation (DIC)

This is a tax-free monetary benefit for the spouses or survivors of service members who have died or become permanently disabled as a result of service.

  • Eligibility: Eligibility criteria varies depending on whether the survivor is the spouse, child, or dependent of the deceased service member. Generally, the service member must have died while on active military duty, and the VA must be able to establish a significant connection between the deceased and their survivor (marriage, lengthy cohabitation, children, etc.) To learn more about the eligibility requirements for DIC, please refer to the VA website.
  • Limitations: Compensation varies depending on when the service member died. Generally, spouses and survivors of deceased service members who died after January 1, 1993 are eligible for up to $1,215 in monthly compensation. To see more about the rates of compensation, please refer to the VA website.
  • Tax Benefit: Compensation under the DIC is nontaxable, and does not need to be filed as part of your income.
  • How to File: Do not file compensation received under the DIC as part of your Gross Income. Find out more about the DIC here.

Survivors & Dependents Assistance (DEA)

Affiliated with the GI Bill, this program gives tuition and education assistance to survivors and dependents of deceased or permanently disabled service members.

  • Eligibility: You must be the son or daughter of an Armed service member who died or who was permanently disabled during active duty. You must be between 18 and 26 years of age. There are a number of other eligibility requirements which you can find here.
  • Limitations: The DEA provides GI Bill-like assistance for up to 45 months of education. Benefits end 10 years from the date the VA finds you eligible for these benefits.
  • Tax Benefit: Like the GI Bill, money received from the DEA is nontaxable, and does not need to be declared as part of your income.
  • How to File: To become eligible, you must get and complete VA Form 22-5490. Again, you do not need to declare these benefits as income on your taxes. Find more about the DEA here.

Survivors Pension

This is a monetary compensation paid to the low-income, un-remarried surviving spouse and/or unmarried children of a deceased veteran who served during wartime.

  • Eligibility: To earn survivor’s pension for surviving children and/or spouses, a service member active after September 7, 1980 must have served at least 24 months or the full period of his assignment.
  • Limitations: The Survivors Pension is calculated in part from the yearly income of the surviving spouse or child, which must be less than a limit set by Congress.
  • Tax Benefit: This compensation is nontaxable, and should not be listed as part of your gross income. Find out more about Survivor’s Pension here.

These benefits may overlap, but you want to be careful that your participation in one does not preclude you from the benefits from another. If you receive one or more benefits as a result of a deceased military spouse or parent, be sure to check with a licensed tax professional when filing your taxes.

VI. Additional Resources

It is in your best interest to conduct your own research when it comes to taxes, education, employment, and the military. Refer to the VA website for all veteran affairs.

Taxes

Education

Employment

  • This “toolkit” from the VA includes valuable links to various services designed to help veterans.
  • This FAQ from the IRS on USERRA and SSCRA is useful for active and reserve military members with questions on re-employment and the reinstatement of retirement plans.
  • My Next Move is a resource that helps veterans find employment that matches their experience or desired field.