Can You Gross Up Your BAH and BAS for a Mortgage?

Understanding BAH and BAS

Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS) are financial provisions for military service members. BAH provides a housing allowance based on geographic location, pay grade, and dependency status, offsetting housing costs when government quarters are not provided. BAS offsets the costs of a service member’s meals.

Understanding the Tax Status of BAH and BAS

For federal income tax purposes, both Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS) are generally considered non-taxable income. This means that the amounts received for these allowances are not subject to federal income tax deductions. This non-taxable status is a significant benefit for military members, as it increases their effective take-home pay. The Internal Revenue Service (IRS) clarifies that these allowances are excluded from gross income.

The non-taxable nature of these allowances simplifies financial planning for service members, as they do not need to account for tax liabilities on these specific income streams. This treatment ensures that the full amount of the allowance is available to cover the intended housing and subsistence costs.

The Concept of “Grossing Up” Payments

“Grossing up” is a financial calculation ensuring a recipient receives a specific net payment after taxes or other deductions. It involves increasing the original payment to cover anticipated tax liability, so the net amount after taxes equals the desired figure. Payers often employ this to guarantee a certain take-home amount, absorbing the tax burden.

For example, a company might “gross up” a taxable bonus payment. If the company wants an employee to receive a net bonus of $1,000 with a 25% effective tax rate, it calculates the gross payment needed. This ensures the employee receives the full intended benefit without their net payment being reduced. The concept is relevant for payments subject to taxation.

Applying “Grossing Up” to BAH and BAS

The concept of “grossing up” is not applicable to Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS) for federal income taxes. These allowances are non-taxable income for federal purposes. Since no federal income tax is withheld, there is no tax liability for the military to “gross up” or cover.

Service members receive the full amount of their BAH and BAS entitlements without federal income tax deductions. Therefore, the military does not need to increase the allowance amount to ensure a specific net payment, as the gross allowance already equals the net amount received. This contrasts with taxable income, where “grossing up” achieves a desired net payment after tax. The non-taxable nature of these allowances means the full benefit is realized without additional tax considerations.