10 Tax Benefits Every Military Member and Family Should Know

Tax season can be stressful for anyone. But if you or a loved one serves in the military, you might be leaving money on the table, especially if you're not familiar with your special tax benefits. From tax-free income to extended deadlines, military members and their families receive a broad range of financial advantages designed to manage the unique challenges of military life. Here’s a breakdown of the top 10 tax benefits every military member and family should know—and how to claim them!

1. Combat Zone Tax Exclusion

If you are serving in a designated combat zone, you get to keep more of your paycheck. Income earned in these areas can qualify as tax-exempt, meaning less of your hard-earned money goes to taxes. It’s a benefit that can make a big difference during your service. Here are some details:

• For Enlisted Members and Warrant Officers: All pay received during the month of service in a combat zone is tax-free.
• For Commissioned Officers: The tax exclusion is capped at the highest enlisted pay rate plus imminent danger or hostile fire pay.

INSIDER TIP: Confirm whether your service area qualifies as a “combat zone” by checking the Internal Revenue Service (IRS) guidelines.

2. State Tax Benefits

Military life often means maintaining your residency in one state while being stationed elsewhere. This can exempt servicemembers from state income taxes in their duty state. Plus, the Military Spouse Residency Act (MSRRA) protects spouses too! They have the option to retain their state of residence for tax purposes, regardless of where they are living.

3. Deductible Moving Expenses

For active-duty service members and their families, frequent moves are part of the job. Therefore, Permanent Change of Station orders often mean packing up your life—again. The good news? You can deduct unreimbursed moving expenses, like transportation, storage of household goods, and even lodging during the move. This tax deduction can provide some much-needed relief as you transition to your next duty station.

INSIDER TIP: Keep all receipts related to your move to make sure these deductions are tracked accurately.

4. Extension Tax Deadlines

Are you deployed to a combat zone or stationed abroad? You may qualify for an automatic extension on tax return filings, payments, and other tax-related obligations. The IRS provides a 180-day extension after leaving a combat zone to complete these tasks. If you are married and file your taxes jointly, your spouse also benefits from this extension, giving military families one less thing to worry about.

5. Uniform Deduction

Spending your own money to keep that uniform looking sharp? Be sure to track your expenses for tax season! In certain states, some military members can deduct uniform costs not covered by allowances, including dry cleaning, tailoring, and repairs. However, this deduction only applies if military regulations prevent you from wearing the uniform off duty.

6. Earned Income Tax Credit (EITC)

Combat pay and the Earned Income Tax Credit (EITC) work together in a specific way when filing taxes. Normally, combat pay is tax-free, meaning it's not counted as taxable income. However, if you are a military member applying for the EITC, you can choose to include your combat pay. Doing so could increase your refund or make you eligible for additional credits.

INSIDER TIP: Use the IRS worksheets or consult a tax professional to see whether including combat pay would boost your EITC.

7. Tax-Free Housing Allowances

As a military family, you might be familiar with allowances like Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS). The good news? These allowances are completely tax-free! That means they do not count toward your taxable income, which can lighten the load on your taxes. Ultimately, using BAH and BAS helps you stretch your paycheck further for housing and everyday expenses.

8. Savings Deposit Programs (SDP) Earnings Exemption

Deployed service members participating in the Savings Deposit Program (SDP) can earn 10% interest that’s tax-free—up to certain limits. The program offers a secure saving option with high returns, all while providing tax benefits. It's an excellent way for service members to make the most of their savings while deployed.

9. Death Gratuity and Survivor Benefits

When a service member passes away, the tax system helps ease the financial burden on their loved ones. Death gratuity, which is paid to survivors, is fully tax-free. Therefore, families don’t have to worry about taxes eating into that support. In addition, survivor benefits like Servicemembers' Group Life Insurance (SGLI) and the Survivor Benefit Plan (SBP) have tax exemptions.

10. Education Tax Benefits

The military offers great education benefits that make it easier for service members and their families to pay for schooling—without worrying about taxes. Programs like the GI Bill and Military Tuition Assistance provide tax-free funding for tuition and living expenses, and this also extends to dependents who use transferred benefits. Whether you are pursuing a degree, training for a new career, or paying for a family member’s education, these tax-free benefits can provide a major offset to the cost.

How to Claim Military Tax Benefits

The best way to maximize your tax benefits in the military is through preparation:

• Keep Records: Save receipts, PCS orders, allowances, and other documentation for accurate tax filing.
• Visit Your On-Base Tax Assistance Center: Take advantage of free support from trained professionals who can help you navigate your military tax benefits
• Use IRS Resources: Refer to helpful tools like the Armed Forces Tax Guide, Publication 3 for detailed explanations of each benefit.
• Seek Expert Help: Consider consulting a tax specialist familiar with military exemptions to make the process easier.

Simplify Taxes With Our Military Bank

Understanding and claiming these military tax benefits can save you money and relieve stress during tax season. From combat zone exclusions to education tax relief, these tax breaks are designed to support you and your family.

We are here to help! Armed Forces Bank is proud to support military families, not just during tax season but throughout the year. If you have questions, our military banking experts are just a call away. Explore our online resources or visit a branch near you to take control of your finances with confidence.

And for additional support, check out our helpful financial calculators, including the Mortgage and Tax Calculator, Loan and Credit Line Tax Calculator, Marginal Tax Calculator, 1040 Tax Calculator, 1040EZ Tax Calculator, Traditional IRA Calculator, and Roth IRA Conversion Tax Calculator.

MORE TAX RESOURCES:
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Financial Moves Military Members Should Make Before Year-End to Prep for Tax Season
How to Protect Yourself from Cyber Criminals and Scams this Tax Season

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