Tax Benefits for Military Members & Veterans

From combat zone exclusions to special filing extensions, understand every tax advantage available to those who serve and have served.

Military service members and veterans have access to unique tax benefits not available to civilians. Combat zone pay exclusions, special filing deadline extensions, and the ability to deduct unreimbursed moving expenses are just a few of the provisions designed to support those in uniform.

Active duty service members should understand how their various pay components are taxed. Basic pay is taxable, but many allowances including Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS) are tax-free. Combat zone pay is excluded from income entirely for enlisted members and partially for officers. These exclusions can significantly reduce your tax liability.

Veterans transitioning to civilian life should be aware that VA disability compensation is completely tax-free, and certain VA benefits like education assistance under the GI Bill are also excluded from taxable income. Veterans who received both taxable military retirement pay and VA disability compensation may be able to adjust prior returns to claim refunds through Combat-Related Special Compensation or Concurrent Retirement and Disability Pay.

Key Deductions & Credits

Combat Zone Pay Exclusion

$5,000 - $40,000+

Enlisted members can exclude all military pay earned during any month they serve in a combat zone. Officers can exclude pay up to the highest enlisted pay plus imminent danger pay.

Moving Expense Deduction

$1,000 - $8,000

Active duty military members can still deduct moving expenses for permanent change of station (PCS) moves, even though this deduction was eliminated for civilians.

Tax-Free Allowances

$3,000 - $10,000+

BAH, BAS, uniform allowances, and family separation allowances are excluded from taxable income. These can total $20,000-$40,000+ annually.

Earned Income Tax Credit (EITC) Election

$500 - $7,830

Military members can elect to include nontaxable combat pay as earned income for EITC purposes, which may increase the credit amount.

VA Disability Compensation

$2,000 - $45,000+

VA disability payments are completely excluded from federal taxable income. Veterans with disability ratings who received taxable retirement pay may file amended returns.

Forms You May Need

Form W-2 — Wage and Tax Statement (Box 12 codes for combat pay)

Form 3903 — Moving Expenses (military PCS moves only)

Form 1040 — U.S. Individual Income Tax Return

Form 8812 — Additional Child Tax Credit

DD-214 — Certificate of Release or Discharge (for veteran benefits)

Filing Tips

Take advantage of free tax preparation through Military OneSource MilTax, which provides free filing software and access to tax consultants for all military members.
If you served in a combat zone, your filing deadline is automatically extended by at least 180 days after you leave the zone plus the time remaining in the filing period.
Review your Leave and Earnings Statement (LES) to verify which pay components are taxable and which are excluded before filing.
Consider electing to include nontaxable combat pay in earned income for EITC calculation. Run the numbers both ways to see which produces a larger credit.
If you are a reservist who travels more than 100 miles for reserve duty, you can deduct travel expenses above the line even without itemizing.
Check your state of legal residence carefully. Many military-friendly states like Texas, Florida, and Nevada have no state income tax.

Common Mistakes to Avoid

Including tax-free allowances like BAH and BAS as taxable income, which inflates AGI and reduces eligibility for credits.
Not requesting the automatic combat zone filing extension and paying penalties for late filing.
Forgetting that you can still deduct PCS moving expenses even though civilians lost this deduction after 2017.
Not checking both EITC calculation methods, with and without combat pay, to find the more beneficial result.
Filing in a high-tax state instead of maintaining legal residence in a military-friendly no-income-tax state.

Recommended Software

TaxSlayer offers free federal and state filing for active duty military through their partnership with Military OneSource, plus it handles combat zone exclusions and PCS moves correctly.

Review TaxSlayer

FAQ

Is my military housing allowance (BAH) taxable?

No. BAH is excluded from federal taxable income. It does not appear in Box 1 of your W-2. However, the full amount may be included when calculating child support or some financial aid formulas.

How long is the combat zone filing extension?

You receive an automatic extension of at least 180 days after you leave the combat zone, plus the number of days remaining in the normal filing period when you entered the zone. This can extend your deadline well past the following April 15.

Are VA disability benefits taxable?

No. VA disability compensation is completely tax-free at the federal level. Most states also exclude VA disability from state income tax. You do not need to report it on your federal tax return.

Can I use MilTax for free?

Yes. MilTax, provided through Military OneSource, offers free tax preparation software and free electronic filing for federal and up to three state returns. It is available to active duty, Guard, Reserve members, and their families, with no income limitations.