Military & veteran tax
Military pay is not ordinary W-2 income, and generic filing workflows can overlook rules that apply only to service members. These are the issues we handle every season.
Since 2023, the Veterans Auto and Education Improvement Act lets a married service member and spouse elect, for any taxable year of the marriage, among three states: the member's domicile, the spouse's domicile, or the permanent duty station. States have implemented this inconsistently, so the election needs to be documented properly.
Enlisted members, warrant officers, and commissioned warrant officers exclude all military pay for each month they were present in a designated combat zone — any part of a month counts as the whole month. Commissioned officers are capped at the highest enlisted pay rate plus imminent danger pay. Verify Box 12 code Q on the W-2 before filing.
Combat zone service, and service in a contingency operation, suspends filing, payment, and collection deadlines until 180 days after the last day in the zone, plus any days that were still left in the filing period when service began. The relief generally reaches a spouse filing jointly as well.
The One Big Beautiful Bill Act made the repeal of the moving expense deduction permanent for civilians while keeping it for active duty members moving under PCS orders — and extended it to qualifying intelligence community personnel starting in 2026.
Travel that is overnight and more than 100 miles from your tax home for drill produces an above-the-line deduction on Form 2106, limited to the federal per diem and standard mileage rates. Generic workflows often skip it, and missed years can usually be amended within three years.
Excluded combat pay doesn't count as earned income by default — but you can elect to include it when figuring the Earned Income Credit. It's all or nothing, and on a joint return each spouse elects separately. Run it both ways; the election sometimes swings the credit by thousands.
If on April 15 you are living outside the U.S. and Puerto Rico with your main place of business or post of duty there, or you are on military or naval duty outside the U.S. and Puerto Rico, you receive an automatic two-month extension to June 15 under Treas. Reg. §1.6081-5(a). No form is required — but you must attach a statement to the return saying which situation applies, or the extension isn’t claimed. On a joint return, either spouse qualifying covers both. It extends time to file and pay, though interest still accrues from April 15 on anything unpaid. Need longer? Form 4868 filed before June 15 takes you to October 15.
VA disability compensation is not taxable income. Military retired pay generally is, and any retired pay you waive to receive VA compensation is not taxed either. Combat-Related Special Compensation is tax-free while Concurrent Retirement and Disability Pay is taxable, so the two are easy to confuse. Separation and severance pay have their own rules, and states treat military retirement pay differently. Starting a business after service? Entity choice and estimated taxes are where first-year surprises come from.
We don’t prepare, present, or prosecute VA benefit claims. Free claims help is available from VA-accredited representatives; you can search VA’s accreditation database.