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Armed Forces' Tax Guide

Gross Income

Members of the Armed Forces receive many different types of pay and allowances. Some are includible in gross income while others are excludable from gross income. Includible items are subject to tax and must be reported on your tax return. Excludable items are not subject to tax, but may have to be shown on your tax return.

For information on the exclusion of pay for service in a combat zone and other tax benefits for combat zone participants, see Combat Zone Exclusion and Extension of Deadline.

Includible Items

These items are includible in gross income, unless the pay is for service in a combat zone.

Basic pay · Active duty
· Attendance at a designated service
school
· Back wages
· Drills
· Reserve training
· Training duty
Special pay · Aviation career incentives
· Diving duty
· Foreign duty (outside the 48 contiguous
states and the District of Columbia)
· Hostile fire
· Imminent danger
· Medical and dental officers
· Nuclear-qualified officers
· Special duty assignment pay
Bonuses · Enlistment
· Reenlistment
Other · Accrued leave
payments · Personal money allowances paid to
high-ranking officers
· Student loan repayment from
programs such as the Department
of Defense Educational Loan
Repayment Program when year's
service (requirement) is not
attributable to a combat zone.

Excludable Items

These items are excludable from gross income. The exclusion applies whether the item is furnished in kind or is a reimbursement or allowance. There is no exclusion for the personal use of a government-provided vehicle.

Special Pay · Compensation for active service while in
a combat zone or a qualified
hazardous duty area.
Note: Limited amount for officers.
Living · BAH (Basic Allowance for Housing)
allowances You can deduct mortgage interest and real estate taxes on your home even if you pay these expenses with your BAH.
· BAS (Basic Allowance for Subsistence)
· Housing and cost-of-living allowances
abroad whether paid by the U.S. Government or by a foreign government.
· VHA (Variable Housing Allowance)
Family · Certain educational expenses for
allowances dependents
· Emergencies
· Evacuation to a place of safety
· Separation
Death · Burial services
allowances · Death gratuity payments (up to $3,000)
to eligible survivors
· Travel of dependents to burial site
Moving · Dislocation
allowances · Move-in housing
· Moving household and personal items
· Moving trailers or mobile homes
· Storage
· Temporary lodging and temporary lodging
expenses
Travel · Annual round trip for dependent students
allowances · Leave between consecutive overseas
tours
· Reassignment in a dependent-restricted
status
· Transportation for you or your dependents
during ship overhaul or inactivation
· Per diem
Other · Defense counseling
payments · Disability
· 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 · Legal assistance
benefits · Space-available travel on government
aircraft
· Medical/dental care
· Commissary/exchange discounts

Foreign Source Income

If you are a U.S. citizen with income from sources outside the United States (foreign income), you must report all that income on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2, Wage and Tax Statement, or 1099 statement from the foreign payor. This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties).

Certain taxpayers can exclude income earned in foreign countries. For 1999, this exclusion amount is $74,000. However, the foreign earned income exclusion does not apply to the wages and salaries of military and civilian employees of the U.S. Government. U.S. Government employees include those who work at Armed Forces post exchanges, officers' and enlisted personnel clubs, embassy commissaries, and similar personnel paid from nonappropriated funds. Other foreign income earned by military personnel or their spouses may be eligible for the foreign earned income exclusion.

For more information on the exclusion, get Publication 54.

Residents of American Samoa may be able to exclude income from certain possessions. This possession exclusion does not apply to wages and salaries of military and civilian employees of the U.S. Government. If you need information on the possession exclusion, get Publication 570, Tax Guide for Individuals With Income From U.S. Possessions.

Community Property

The pay you earn as a member of the Armed Forces may be subject to community property laws depending on your marital status, your domicile, and the nature of the payment. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Marital status. Community property rules apply to married persons whose domicile during the tax year was in a community property state. The rules may affect your tax liability if you file separate returns or are divorced during the year.

Domicile. Your domicile is the permanent legal home you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. It is not always where you presently live.

Nature of the payment. Active duty military pay is subject to community property laws. Armed Forces retired or retainer pay may be subject to community property laws.

For more information on community property laws, get Publication 555, Community Property.

Information courtesy of United States Internal Revenue Service.

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