The Tax Brief real effective rates for 111+ countries — bi-weekly, free.
TAX GUIDE

Military Officers Tax Guide 2026: BAH, BAS, Combat Zone Exclusion & State Exemptions

Daniel · CountryTaxCalc Updated April 2026
Run the calculator → Jump to FAQ
KEY INSIGHT
Military service members receive substantial tax-free allowances: BAH (Basic Allowance for Housing) and BAS (Basic Allowance for Subsistence) are fully excluded from federal and state income tax — worth $20,000–$50,000+ per year depending on rank and location. Combat zone pay is completely excluded from federal income tax for enlisted members; for officers, the exclusion is capped at the highest enlisted pay plus hostile fire/imminent danger pay. Over 20 US states fully exempt military base pay from state income tax. TSP contributions have the same tax advantages as civilian 401(k) plans.
At a glance

Key Facts

Tax-Free Military Allowances
Fully excluded from federal (and most state) income tax: BAH (Basic Allowance for Housing) — based on rank, dependency status, and duty station zip code; ranges from ~$1,200/month (E-1 without dependents in low-cost area) to $5,000+/month (senior officers in NYC/San Francisco). BAS (Basic Allowance for Subsistence) — $460.26/month for officers (2025); $311.67/month for enlisted. COLA (Cost of Living Allowance) for overseas duty. Family Separation Allowance. Uniform allowance for initial issue. Moving/relocation allowances (DPS moves). Taxable: base pay (salary), special pay (flight pay, diving pay, sea pay, hazardous duty pay — unless in combat zone).
Combat Zone Pay Exclusion
All pay received during a month in which a service member serves in a designated combat zone is excluded from federal income tax. Enlisted members and warrant officers: entire month's pay excluded (even if only one day in the zone). Commissioned officers: monthly exclusion capped at the highest enlisted pay rate plus any hostile fire/imminent danger pay ($225/month). For an O-5 (Lt. Colonel) in 2025: maximum monthly exclusion approximately $10,012 (highest E-9 pay) + $225 = ~$10,237. Designated combat zones include Iraq, Afghanistan, Syria, and others — IRS Publication 3 lists current zones. Military death gratuity ($100,000): tax-free. Disability severance pay for combat injuries: tax-free.
States That Exempt Military Pay (2026)
States with full military pay exemption (federal active duty): Alabama, Florida, Iowa, Kansas, Louisiana, Michigan, Minnesota, Missouri, Montana, New Hampshire, New Jersey, New York, North Dakota, Ohio, Pennsylvania, South Carolina, Texas, West Virginia, Wisconsin, Wyoming. States with partial exemptions: California (only deployed combat zone pay), Virginia (active duty stationed out of state). Highest-tax states with NO exemption for most active duty: California, New York (only exempts pay during out-of-state active duty), New Jersey. Military members stationed outside their home state: most file a resident return in their legal domicile state (not the duty station state) under SCRA protections.
Thrift Savings Plan (TSP)
TSP is the federal government retirement account equivalent to a 401(k). 2025 limits: $24,500 employee contribution ($32,500 if 50+). Roth TSP option: post-tax contributions, tax-free withdrawals in retirement. Traditional TSP: pre-tax, reduces current taxable income. BRS (Blended Retirement System): service members who joined after 2018 automatically enrolled in BRS, which includes 1% automatic government contribution + matching up to 4% of base pay (fully vested after 2 years). Combat zone TSP contributions: service members can contribute tax-free combat zone pay to TSP — if placed in traditional TSP, contributions are not deductible (already tax-free); if placed in Roth TSP, contributions and growth are tax-free.
SCRA: State Tax Protections for Deployed Members
The Servicemembers Civil Relief Act (SCRA) provides state income tax protections. Key provision: military spouses' income is not subject to state income tax in the duty station state if the spouse is there only because of the service member's military orders (Veteran Employment Opportunity Act extension). Service members: their legal domicile (home state before service, or state they've established domicile) is their tax state — not the duty station state. A California native stationed in Virginia pays California state income tax on base pay (not Virginia), unless they establish Virginia domicile. Choosing a no-income-tax state as domicile (Texas, Florida, Nevada) is a common — and legal — military tax strategy.
Introduction

Military service members have a tax situation that differs significantly from civilian employees — a substantial portion of military compensation is received as non-taxable allowances rather than taxable base pay. Understanding which elements of military compensation are taxable is the starting point for military tax planning. The benefits are significant: BAH and BAS exclusions alone can represent 30–50% of total compensation on a pre-tax basis. Combat zone exclusions can eliminate federal income tax entirely during deployment. State tax treatment varies enormously — some states fully exempt all military pay, others tax it the same as civilian wages.

Section 01

The Military Domicile Strategy

One of the most significant financial decisions for career military is choosing a legal domicile (home state for tax purposes). Because SCRA allows military members to maintain domicile in any state regardless of where they are stationed, many service members establish domicile in states with no income tax.

Common no-income-tax military domicile states: Texas (Fort Cavazos, Fort Bliss, Fort Sam Houston make this natural for many), Florida (MacDill AFB, NAS Pensacola, Camp Blanding), Nevada (Nellis AFB), Wyoming, and Washington state.

How to establish domicile: Obtain a state driver's license; register to vote; register vehicles; open bank accounts; file taxes there. Courts look for genuine intent to make the state your permanent home when military career ends.

Annual savings: A Major (O-4) in the 24% bracket earning $80,000 in base pay moving domicile from California (9.3% top rate) to Texas saves approximately $7,440/year in state income tax. Over a 20-year career, compounded, this represents substantial savings.

💡

CountryTaxCalc.com is reader-supported. When you use our partner links, we may earn a commission at no cost to you. Learn more about our affiliate partnerships

Military Tax Specialist

TaxHub

★ 4.8 verified reviews  ·  3,758 reviews

TaxHub provides affordable tax filing for military members — BAH/BAS exclusions, combat zone pay, multi-state SCRA returns, TSP reporting, and military retirement pay. Note: active duty service members qualify for free MilTax filing through the DoD.

⚠ Not for simple single-state returns. Free filing is fine for straightforward W-2 situations.

Get Military Tax Filing Help →

Interested in reaching this audience? Advertise on CountryTaxCalc →

FAQ

Frequently Asked Questions

Is my BAH taxable?

No. Basic Allowance for Housing (BAH) is completely excluded from federal and state income tax — it does not appear on your W-2 as taxable wages. BAH is not reported to the IRS at all. The same applies to BAS (Basic Allowance for Subsistence). These allowances can represent a significant portion of total military compensation. For example, an O-4 with dependents at Camp Pendleton, California receives BAH of approximately $3,900/month in 2025 — $46,800/year completely tax-free. This tax exclusion is one of the most valuable financial benefits of military service, particularly in high-cost duty station areas.

How does military retirement pay get taxed?

Military retirement pay (pension) is fully taxable federally as ordinary income — it appears on Form 1099-R. However, many states exempt military retirement pay from state income tax: Alabama, Arizona, Arkansas, Connecticut, Hawaii, Illinois, Iowa, Kansas, Louisiana, Michigan, Mississippi, New Jersey, New York, North Dakota, Ohio, Pennsylvania, West Virginia, Wisconsin — among others fully exempting military retirement pay. Some states partially exempt it or phase out exemptions at higher incomes. Disability retirement pay: if retired for service-connected disability (Chapter 61 retirement), a portion may be excluded from income tax depending on disability percentage and Combat-Related Special Compensation (CRSC) status.

What is the Survivor Benefit Plan and how is it taxed?

The Survivor Benefit Plan (SBP) is optional retirement coverage that provides a monthly annuity to a surviving spouse or dependent after the service member's death. SBP premium: deducted from retirement pay before taxes — so SBP premiums are effectively pre-tax (they reduce taxable retirement income). SBP annuity received by the beneficiary: taxable ordinary income (reported on 1099-R). The SBP tax treatment creates a pre-tax premium / post-tax benefit structure. Dependency and Indemnity Compensation (DIC) from the VA is not taxable. If SBP and DIC are both received, the SBP annuity offsets the DIC dollar-for-dollar (the 'widows tax') — Congress has been working on eliminating this offset.

Can I contribute to an IRA while in the military?

Yes. Military members can contribute to a traditional or Roth IRA up to the standard limits ($7,500 in 2025; $8,600 if 50+), provided they have taxable earned income equal to or exceeding the contribution. The key nuance: combat zone pay is tax-free and excluded from W-2 income. If your only income is combat zone pay (zero taxable income), you technically cannot contribute to an IRA since you have no taxable compensation. However, you can contribute up to the combat zone pay amount as a special rule for service members — the tax code allows combat zone pay to count as compensation for IRA contribution purposes even though it's excluded from income. This allows deployed service members to continue building retirement savings.
Disclaimer:This guide provides general tax information for educational purposes only. Military tax law, state exemption lists, combat zone designations, and SCRA protections are subject to change. Nothing in this guide constitutes tax or legal advice. Consult a CPA experienced in military taxation or use the free MilTax service (provided by the Department of Defense for service members).
Keep reading

Related Guides

GUIDE
San Antonio Texas Tax Guide 2026
GUIDE
American Samoa Tax Guide 2026
GUIDE
Guam Tax Guide 2026
GUIDE
Texas Income Tax Calculator 2026
GUIDE
USA Income Tax Calculator
From the brief
PT38.4%−9.6 vs. headline
CY17.8%incl. 60-day rule
AE 0.0%substance required
The Tax Brief · Subscribe free

More like this, every two weeks.

Verified rates, real after-tax figures, plain English. Free.

Bi-weekly. No spam. Unsubscribe in one click.