Do Army Soldiers Pay Taxes? Rules & Exemptions

U.S. Army soldiers are subject to federal and state income taxes. Their unique service comes with specific tax rules and exemptions that can impact their tax obligations. These provisions recognize the distinct nature of military life, including deployments, frequent relocations, and certain allowances.

Understanding Taxable Military Pay

Most components of military pay are generally considered taxable income for federal income tax purposes. This includes a soldier’s basic pay, which forms the foundation of their earnings. Various incentive pays, such as hazardous duty pay or flight pay, and special pays are also typically subject to federal income tax. These earnings are also subject to Social Security and Medicare taxes, similar to civilian wages.

Soldiers can also utilize common deductions, such as contributions to the Thrift Savings Plan (TSP). Contributions made to the traditional TSP reduce taxable income in the year they are made, offering a tax deferral benefit. This allows earnings to grow tax-free until withdrawal in retirement.

Combat Zone Tax Exemptions

The Combat Zone Tax Exclusion (CZTE) exempts pay earned in a designated combat zone from federal income tax. This exclusion applies to basic pay, reenlistment bonuses, hazardous duty pay, and other specific types of income accrued while serving in a combat zone. Eligibility for the CZTE generally requires a service member to be present in a designated combat zone for at least one day of a month; if this condition is met, their pay for the entire month is excluded. The exclusion extends to income earned during hospitalization from injuries sustained in a combat zone, with a two-year limit after leaving the zone.

For enlisted members, warrant officers, and commissioned warrant officers, all military pay earned in a combat zone is excluded from federal taxation. Commissioned officers, however, have a limitation on the amount of income they can exclude, which is capped at the highest rate of enlisted pay plus any hostile fire or imminent danger pay for that month. While combat zone pay is exempt from federal income tax, it remains subject to Social Security and Medicare taxes. This exclusion is automatically reflected on a soldier’s pay statement and W-2 form, requiring no special enrollment.

Non-Taxable Military Allowances

Several military allowances are generally not subject to federal income tax. These allowances are designed to reimburse service members for specific expenses, rather than being considered direct compensation. Basic Allowance for Housing (BAH) is a common example, providing funds to cover housing costs when government quarters are not provided. BAH rates vary based on location, pay grade, and dependency status.

Basic Allowance for Subsistence (BAS) is another non-taxable allowance intended to help cover the cost of meals. Unlike BAH, BAS is a flat rate that does not vary with rank beyond officer/enlisted distinction or with the number of dependents. Uniform allowances, which help service members maintain their required attire, are also non-taxable. Moving expense reimbursements for permanent changes of station (PCS) are excluded from taxable income for military personnel.

State Tax Residency for Service Members

State income tax obligations for military personnel are determined by their state of legal residency, or domicile, rather than the state where they are currently stationed. The Servicemembers Civil Relief Act (SCRA) protects service members from paying state income tax on their military earnings to any state other than their home state of legal residency. This means a soldier’s domicile does not change simply because they receive military orders to move to a new state.

The Military Spouses Residency Relief Act (MSRRA) extends similar protections to military spouses. Under MSRRA, a military spouse may maintain the same state of legal residency as their service member spouse for tax purposes, even if they physically reside in a different state due to military orders. Recent amendments allow spouses to elect their own state of residence, the service member’s state of residence, or the service member’s permanent duty station for tax purposes, offering flexibility in determining state tax obligations.

Tax Filing and Assistance

Army soldiers receive a W-2 form, similar to civilians, which reports their taxable income. Tax-exempt income, such as combat pay, is typically not included in Box 1 of the W-2 but is often noted with specific codes in Box 12.

Various resources are available to service members for tax preparation and assistance. Military tax centers on military installations provide free federal and sometimes state income tax preparation, assistance, and advice from trained volunteers. The IRS Volunteer Income Tax Assistance (VITA) program offers free tax help to eligible individuals, including military members, both on and off military bases. Military OneSource provides MilTax, a suite of free tax services that includes user-friendly tax preparation and e-filing software, along with personalized support from tax consultants.