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 on page 6 and Extension of
Deadline on page 20.
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 payments |
· Accrued leave |
| · 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 allowances |
· BAH (Basic Allowance
for Housing) |
| · 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. |
| · OHA (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
(up to $3,000) 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 |
| 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 |
| Otherpayments |
· Defense counseling |
| · 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 benefits |
· Legal assistance |
| · 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 2000, this exclusion amount is $76,000. However, the foreign
earned income exclusion does not apply to the wages and
salaries of military and civilian employees of the U.S. Government.
Employees of the U.S. Government include those who work at Armed
Forces post exchanges, officers' and enlisted personnel clubs, and
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.
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