How Much Can You Gross Up BAH and BAS?

In financial terms, “grossing up” refers to increasing a payment or benefit to cover associated tax liability, ensuring the recipient receives a specific net amount after taxes are withheld. This method applies when an employer or entity intends for an individual to receive a predetermined sum and wishes to absorb the tax burden. This article clarifies how this concept applies to Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS), which are specific allowances for military members.

Understanding Basic Allowances for Housing and Subsistence

Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS) are financial benefits provided to uniformed service members on active duty. BAH helps cover housing costs when government quarters are not provided, with the amount varying based on the service member’s pay grade, dependent status, and the cost of living in their duty station’s geographic area. BAS is a monthly allowance intended to offset the cost of meals and food-related expenses, particularly for those not eligible to eat in base dining facilities.

BAH and BAS for active duty military members are tax-exempt. Under federal law, these allowances are considered non-taxable income. This means they are excluded from a service member’s gross income for federal income tax purposes and are not subject to Social Security or Medicare taxes. While some state tax laws may differ, most align with federal guidelines regarding the non-taxable nature of these military allowances.

This tax exclusion offers a financial advantage to military personnel, as it effectively increases their disposable income. The non-taxable nature of BAH and BAS distinguishes them from basic pay, which is subject to federal income tax.

Applying the Gross Up Concept to BAH and BAS

Given the tax-exempt nature of Basic Allowance for Housing (BAH) and Basic Allowance for Subsistence (BAS) for active duty military members, “grossing up” for tax purposes is not applicable to these allowances. Since BAH and BAS are not subject to federal income tax or Social Security and Medicare taxes, there is no tax liability for which to provide an additional “gross-up” amount.

The query about grossing up BAH and BAS often stems from a misunderstanding of their tax status. If these allowances were taxable, a gross-up calculation might be relevant to ensure a service member received a specific net amount after taxes. However, because they are already excluded from taxable income, there is no need to adjust the payment to account for a tax burden that does not exist. The full amount of BAH and BAS received by active duty military members already represents their net benefit from a tax perspective.

Therefore, phrases like “grossing up BAH” or “grossing up BAS” for tax purposes are inaccurate when referring to these military allowances. The amounts are determined by established Department of Defense regulations and are paid directly to service members without any tax withholding on these particular allowances.

When Grossing Up Other Allowances May Apply

While grossing up does not apply to military BAH and BAS due to their tax-exempt status, it is a common practice for other types of taxable allowances or benefits. Civilian employers may provide various allowances to employees that are considered taxable income. These can include housing allowances, relocation expense reimbursements, or stipends for food or other living costs.

When an employer provides a taxable benefit, they might choose to “gross up” the payment to ensure the employee receives a specific net amount. For example, if a company agrees to cover an employee’s relocation expenses and wants to ensure the employee receives the full agreed-upon amount without it being reduced by taxes, the company would calculate and add an additional sum to cover the employee’s tax liability on that reimbursement. This process effectively shifts the tax burden from the employee to the employer.

Some civilian government employees stationed abroad may receive certain allowances that are taxable, while others, like specific cost-of-living allowances or housing allowances, can be non-taxable. If a taxable allowance is provided, an employer could gross it up. This practice is distinct from military allowances because the underlying benefit is, by default, subject to income tax withholding and reporting. The decision to gross up a taxable allowance is a policy choice made by an employer to enhance the value of a benefit to an employee.