Tax answer
What tax breaks do military families get?
Short answer
Military families have several provisions that civilians do not: combat zone pay is excluded from income (fully for enlisted members, up to a cap for officers), allowances like BAH and BAS are not taxed, active-duty PCS moving costs are still deductible, and residency does not change just because of a permanent change of station. A military spouse can generally claim the servicemember's state of legal residence, which matters a lot when that state has no income tax. Filing deadlines are also extended for those serving in a combat zone.
Income that is not taxed
- Combat zone pay — enlisted members and warrant officers can exclude all military pay earned in a month they served in a designated combat zone. Commissioned officers can exclude up to the highest rate of enlisted pay plus any hostile fire or imminent danger pay.
- Allowances — the Basic Allowance for Housing (BAH), Basic Allowance for Subsistence (BAS), and most other allowances are not taxable and are not reported as income.
- Other exclusions — certain death gratuities, some education and relocation benefits, and disability payments from the VA.
Residency and state filing
This is where military families most often overpay or misfile.
- Under the Servicemembers Civil Relief Act, a servicemember's state of legal residence does not change just because they are stationed elsewhere on orders.
- Under the Military Spouse Residency Relief Act (and later changes), a spouse can generally elect the servicemember's state of legal residence for income tax and voting.
- If that state of residence is one with no income tax, keeping residency there — rather than accidentally becoming a resident of the duty-station state — can save real money every year.
Deductions available to military that civilians lost
- PCS moving expenses — active-duty members moving on a permanent change of station orders can still deduct unreimbursed moving costs. This deduction was suspended for everyone else.
- Reservist travel — members of the reserves who travel more than 100 miles from home for drills or duty can deduct travel, lodging, and half of meals as an above-the-line deduction.
- Uniform costs — the cost and upkeep of uniforms you are not allowed to wear off duty, reduced by any uniform allowance.
Other provisions
- Filing extensions — service in a combat zone extends the deadline to file and pay, generally by at least 180 days after leaving the zone.
- Combat pay and credits — excluded combat pay can be counted as earned income when it helps the Earned Income Tax Credit or IRA contributions.
- Home sale exclusion — the usual "lived there 2 of the last 5 years" test can be suspended for up to 10 years while on qualified official extended duty.
- Free preparation — MilTax and base VITA sites offer no-cost filing for many military families.
Frequently asked questions
- Is BAH taxable income?
- No. BAH and BAS are allowances, not wages, and are not included in taxable income or on your W-2 as taxable pay.
- My spouse works in the duty-station state. Which state do we file?
- It depends on residency elections. Often the spouse can claim the servicemember's state of legal residence, but the rules turn on facts like where you are registered to vote and licensed. This is worth reviewing before filing.
- Can we still deduct our move?
- If the servicemember is active duty and the move is on PCS orders, unreimbursed moving costs are generally deductible. Reimbursed amounts are not deducted again.
- Does combat pay have to be reported at all?
- Excluded combat pay is shown on the W-2 (box 12, code Q) but is not included in taxable wages. You can elect to count it as earned income for certain credits.
- We moved three times in two years. Do we file in every state?
- Not necessarily. Your state of legal residence usually stays the same. You may have a filing obligation in a state only if you earned non-military income there or actually established residency.
Written by Ross of TaxesbyRoss. Last reviewed September 1, 2026. Reflects the 2025 tax year — rules and figures change annually. This is general information, not individualized tax advice; your result depends on your own facts and records.
Want this handled for your situation?
See Military Family Taxes, or talk it through with Ross.