Colorado Springs Military Newspaper Group

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Excludable income for military members

Compensation for active service while in a combat zone isn’t included in gross income. The exclusion for a commissioned officer — other than a commissioned warrant officer — is limited.

If you receive tax-free combat pay, you can include it as earned income:

  • When determining the Earned Income Credit (EIC)
  • When determining the additional child tax credit
  • For purposes of making an IRA contribution

Other Excludable Income

Even if you received the income as a reimbursement or an allowance, you don’t include this income in your gross income:

Living Allowances

  • Basic Allowance for Housing — However, you can deduct mortgage interest and real-estate taxes on your home even if you pay these expenses with your basic allowance for housing.
  • Basic allowance for subsistence
  • Housing and cost-of-living allowances abroad, whether paid by the U.S. government or by a foreign government
  • Overseas Housing Allowance
  • Family Allowances
  • Certain educational expenses for dependents
  • Emergencies
  • Evacuation to a place of safety
  • Separation
  • Death Allowances
  • Burial services
  • Death gratuity payments to eligible survivors
  • Travel of dependents to burial site
  • Moving Allowances
  • Dislocation
  • Move-in housing
  • Moving household and personal items
  • Moving trailers or mobile homes
  • Storage
  • Temporary lodging and temporary lodging expenses
  • Military base realignment and closure benefit

For the military base realignment and closure benefit, the excludable amount can´t be more than this equation:

95% of the fair market value of the property for which the payments were made (before public announcement of intent to close all or part of the military base or installation) — Property´s fair market value (at the time of sale) = Maximum military base realignment and closure benefit exclusion

The Department of Defense determines:

  • 95% of the fair market value of the property for which the payments were made — before the public announcement of intent to close all or part of the military base or installation
  • Property´s fair market value at the time of sale

Travel Allowances

  • Annual round trip for dependent students
  • Leave between consecutive overseas tours
  • Reassignment in a dependent-restricted status
  • Transportation for you or your dependents during ship overhaul or inactivation
  • Per diem

You can deduct your travel expenses as an adjustment to income on Form 1040 rather than as a miscellaneous itemized deduction if both of these apply:

  • You´re a member of the reserves.
  • You travel more than 100 miles away from home in connection with your duties.

Other Payments

  • Defense counseling
  • Disability, including payments received for injuries incurred as a direct result of a terrorist or military action
  • Group-term life insurance
  • Professional education
  • ROTC educational and subsistence allowances
  • Survivor and retirement-protection plan premiums
  • Uniform allowances
  • Uniforms furnished to enlisted personnel
  • In-kind Military Benefits
  • Dependent-care assistance
  • Legal assistance
  • Space-available travel on government aircraft
  • Medical and dental care
  • Commissary and exchange discounts

You can’t exclude the value of personal use of a government-provided vehicle.

Source: HR Block

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