Income Tax Guide for Military Members

What You Need to Know About Income Tax

Man in the military with bag at the airport
There are different kinds of leave in the military.. Mike Powell / Getty Images

Different states have different rules for taxing military pay and military retirement pay. And when it comes to the Federal government, there are various income tax benefits for active military and veterans.

Military Service Payments

All payments received for military service are taxed as wages except for retirement pay, which is taxed as a pension, according to the Internal Revenue Service (IRS).

Differential wage payments.   

Any and all payments received from an employer during your uniformed services are treated as compensation, says the IRS.

These wages are subject to income tax withholding and are reported on Form W-2.

Military Retirement Pay

If retirement pay is based on age or length of service, it's taxable. A record of this must be included in your income on Form 1040 as a pension on lines 16a and 16b, or on lines 12a and 12b of Form 1040A.

Disabled Veterans

The IRS says those veterans who have become disabled may be eligible to a federal tax refund based on:

  • An increase in the veteran's percentage of disability from the Department of Veterans Affairs.
  • The combat-disabled veteran applying for, and being granted, Combat-Related Special Compensation, after an award for Concurrent Retirement and Disability.

To receive the refund, the disabled veteran will need to file the amended return, Form 1040X, Amended U.S. Individual Income Tax Return, to correct a previously filed Form 1040, 1040A or 1040EZ.

Qualified Reservist Distribution (QRD).   

If you are a reservist and have been ordered or called to active duty for a period of 180 days or more and received a QRD of all or part of the balance in a health care flexible spending account, the QRD is treated as wages and is reportable on Form W-2.

Taxable Allowances

The IRS gives the following list of allowances that must be included in your income and reported as wages if you are on active duty in the military or a veteran:

  • Allowances paid to your spouse and minor children while you are a volunteer leader training in the United States.

  • Living allowances designated by the director of the Peace Corps as basic compensation. These are allowances for personal items such as domestic help, laundry and clothing maintenance.

  • Leave allowances.

  • Readjustment allowances or termination payments. These are considered received by you when credited to your account.

State-By-State Income Tax Guide

Here is a state-by-state list of current state laws and requirements for the taxation of military pay and military retired pay.

ALABAMA

ALASKA

ARIZONA

ARKANSAS

CALIFORNIA

COLORADO

CONNECTICUT

DELAWARE

DISTRICT OF COLUMBIA (Washington D.C.)

FLORIDA

GEORGIA

HAWAII

IDAHO

ILLINOIS

INDIANA

IOWA

KANSAS

KENTUCKY

LOUISIANA

MAINE

MARYLAND

MASSACHUSETTS

MICHIGAN

MINNESOTA

MISSISSIPPI

MISSOURI

MONTANA

NEBRASKA

NEVADA

NEW HAMPSHIRE

NEW JERSEY

NEW MEXICO

NEW YORK

NORTH CAROLINA

NORTH DAKOTA

OHIO

OKLAHOMA

OREGON

PENNSYLVANIA

RHODE ISLAND

SOUTH CAROLINA

SOUTH DAKOTA

TENNESSEE

TEXAS

UTAH

VERMONT

VIRGINIA

WASHINGTON

WEST VIRGINIA

WISCONSIN

WYOMING

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