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Military Pay Exclusions from Taxable Income

While the rest of us are dreaming of tax deductions, you, as a member of the Armed Forces, are likely trying to figure out which of your military pay is excludable from taxable income. You are probably aware that combat pay is not taxable while serving in a combat zone. Knowing where your other exclusions are is as important as your tax deductions in getting the income tax refund you want.

Of course, certain type of pay is fair game on your income tax return, such as hazardous duty pay, drills, hardship duty, and submarine pay. The exception to this is if you perform these duties in a combat zone.

There are many categories that are excludable items from your pay. These types of pay are either a reimbursement or allowance. There are generally 8 categories of excludable items and they include: Combat Zone Pay, Other Pay, Death Allowances, Family Allowances, Living Allowances, Moving Allowances, Travel Allowances, and In Kind Military benefits. For a detailed list of these items please visit IRS Publication 3: Armed Forces Tax Guide.

Not only may you receive excludable pay on your Federal Income Tax Return but some states have military taxable exclusions as well. For example in 2010, the state of Virginia allowed service members to subtract the amount of combat pay for service in support of Operation Joint Endeavor that was included on their Federal Income Tax Return. Be sure to check your states deductions to ensure you are getting the maximum state income tax refund!
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