Military Taxes 2026: Combat Pay, BAH & BAS
Which military pay is tax-free in 2026: combat pay, BAH, BAS and OHA. Plus the combat-pay EITC election, the 180-day extension, and PCS moving expenses.
Quick Answer: What Military Pay Is Tax-Free in 2026
Basic pay is taxable, allowances are not. BAH, BAS, OHA, and the overseas cost-of-living allowances are excluded from gross income under IRC Section 134, and pay earned in a designated combat zone is excluded under IRC Section 112. All of it happens automatically: those dollars never enter Box 1 of your W-2, so there is no form to file and no election to make. The one exclusion you can do something with is combat pay, which you may elect to count as earned income for the Earned Income Tax Credit and the refundable Child Tax Credit.
Key Takeaways
- BAH and BAS are never taxed, and never reported. They are qualified military benefits under IRC Section 134. If your W-2 Box 1 looks small compared to your LES, this is why.
- The combat zone exclusion is monthly, not daily. One day in the zone excludes the entire month’s military pay. Enlisted members and warrant officers have no cap; commissioned officers do.
- Combat pay still owes FICA. Social Security and Medicare tax apply to combat pay even though income tax does not. Boxes 3 and 5 will exceed Box 1.
- Only Section 112 combat pay is electable into earned income. BAH and BAS are excluded under a different statute and can never be counted as earned income for the EITC, elected or otherwise.
- Two extensions exist and they are not the same. June 15 for members stationed abroad (interest still accrues), and 180 days plus remaining filing days for combat zone service (no penalties, no interest).
- PCS moving expenses survived the TCJA. Active-duty members moving under orders are the only group that kept the deduction, and only unreimbursed costs count.
What Military Pay Is Taxable in 2026 (and What Is Not)
Publication 3, the Armed Forces’ Tax Guide, splits military compensation into two tables: includible pay that lands in W-2 Box 1, and excluded allowances and benefits that never touch your return.
| Taxable (reported in W-2 Box 1) | Excluded (never in Box 1) |
|---|---|
| Basic pay, active duty and reserve drill pay | Basic Allowance for Housing (BAH) |
| Special and incentive pays: flight, dive, sea, hazardous duty | Basic Allowance for Subsistence (BAS) |
| Enlistment, reenlistment, and officer accession bonuses | Overseas Housing Allowance (OHA) and overseas cost-of-living allowances |
| Accrued leave sold outside a combat zone month | Dislocation allowance, move-in housing allowance |
| Separation and severance pay | Moving and storage of household goods, temporary lodging expense and allowance |
| Most military retired pay | BRAC benefits, uniform allowances, family separation housing |
| Active-duty ROTC pay, such as summer camp | Death gratuity, VA disability compensation, ROTC subsistence allowance |
The exclusion is automatic. There is no line on Form 1040 where you subtract BAH, because your finance office already left it out of Box 1 before the W-2 was printed.
It cuts both ways: expenses paid with excluded allowance money are generally not separately deductible. Pub 3 carves out one exception, and it is the familiar one. Buy a home, pay the mortgage with BAH, and you keep the mortgage interest and real estate tax deduction if you itemize. With the 2026 standard deduction at $16,100 for single filers and $32,200 for married filing jointly, most junior members will still take the standard deduction anyway. Our itemized vs. standard deduction guide shows where the line falls.
The Combat Zone Exclusion (IRC Section 112) and the Officer Cap
Combat zone pay works differently from allowances. It is ordinary military pay that would otherwise be taxable, made tax-free by statute because of where you earned it.
The one-day rule
One or more days served in a designated combat zone during any month counts as a full month. Report to the zone on the 29th and the entire month of military pay is excluded. Deployment dates on an LES carry real weight for that reason.
Enlisted members and warrant officers: no cap
Every dollar of military pay for a qualifying month is excluded. That includes basic pay, a reenlistment bonus signed while in the zone, imminent danger and hostile fire pay, student loan repayments attributable to those months, and leave earned in the zone that you later sell.
Commissioned officers: capped
A commissioned officer’s monthly exclusion is limited to the highest rate of enlisted basic pay plus any hostile fire or imminent danger pay received that month. Anything above that ceiling is taxable.
For 2026 the ceiling works out to roughly $11,391.90 per month, built from the senior enlisted advisor basic pay rate of $11,166.90 plus $225 in HFP/IDP. The cap moves with the annual pay raise, so confirm the components against your current pay tables before relying on the number.
Hospitalization
If you are hospitalized as a result of wounds, disease, or injury incurred in the combat zone, the exclusion covers the full month of hospitalization. That benefit runs for up to two years after the last month you served in the zone.
The FICA carve-out almost nobody mentions
Section 112 is an income tax exclusion only. Combat pay still owes Social Security and Medicare tax, still shows up in W-2 Boxes 3 and 5, and still earns you Social Security credits toward a future benefit. For 2026 the Social Security wage base is $184,500, with OASDI at 6.2% and Medicare at 1.45%.
This is the top source of “my W-2 is wrong” panic among deployed members. Box 1 sits far below Boxes 3 and 5, and that gap is exactly correct. Nothing to fix.
Where to find it on the W-2
Excluded combat pay is reported in Box 12 with code Q. Keep that number handy; the next section is about what to do with it.
The Combat Pay Election: Turning Tax-Free Pay Into EITC and Refundable CTC
Excluded Section 112 pay is not earned income by default, and that creates a problem. A member deployed for eight months can show a Box 1 figure so low that the Earned Income Tax Credit collapses, even though take-home pay was normal all year. The credit scales with earned income, and most of that year’s earned income was legally erased.
How the election works
IRC Section 32(c)(2)(B)(vi) lets you elect to treat your nontaxable combat pay as earned income for the EITC. In practice that means putting the Box 12 code Q figure into the earned income calculation.
Three mechanics to know:
- All or nothing. You elect the whole Box 12 code Q amount or none of it. There is no partial election.
- Each spouse elects separately on a joint return. If both spouses have combat pay, four combinations are permitted: neither, one, the other, or both.
- Deployment does not cost you residency. Military personnel stationed outside the United States on extended active duty are treated as living in the United States for EITC purposes.
The precision most articles get wrong
You will see blog posts, and at least one IRS web page, that list BAH and BAS alongside combat pay as “nontaxable pay” you can elect into earned income. The statute does not say that. Section 32(c)(2)(B)(vi) permits the election only for amounts excluded under Section 112. BAH and BAS are excluded under Section 134, a different provision covering qualified military benefits, and they are never earned income for the EITC, elected or not.
The practical test: if it is not in Box 12 code Q, it is not electable. Housing and subsistence allowances stay out of the calculation entirely.
It flows into the refundable Child Tax Credit too
The election reaches past the EITC. Nontaxable combat pay also goes on Schedule 8812, line 18b, where it increases the earned income used in the Additional Child Tax Credit formula.
The ACTC refundable portion is 15% of earned income above $2,500, capped at $1,700 per qualifying child for 2026, against a total Child Tax Credit of $2,200 per child. A deployed member with two children whose Box 1 is near zero gets almost no refundable credit without the election. With it, the number can run into the thousands. For families in that range the CTC effect often outweighs the EITC effect.
Which way should you elect?
It depends on where you sit on the curve, which is why you compute it both ways.
The EITC is a hill, not a ramp. Adding earned income helps if you are still climbing the phase-in, and hurts if you are past the plateau and descending through the phase-out. Maximum credits for 2026 are $664 with no qualifying children, $4,427 with one, $7,316 with two, and $8,231 with three or more. Investment income above $12,200 disqualifies you entirely.
The ACTC has no comparable downside at low income levels: more earned income means a larger refundable credit, up to the per-child cap. A deployed filer with children can absorb a small EITC loss and still come out ahead on a much larger CTC gain.
Tax47 is built for exactly this comparison. Enter your W-2 as printed, add your dependents, then toggle the combat pay figure in and out and watch the estimated refund move. Our Earned Income Credit calculator and Child Tax Credit calculator do the same job one credit at a time, and the full eligibility rules are in our guides to the 2026 EITC and the 2026 Child Tax Credit.
Deadlines: June 15 vs. the 180-Day Combat Zone Extension
These are two separate rules with two different interest outcomes, and they get blended together constantly. If you take one table away from this article, take this one.
| Stationed outside the U.S. | Combat zone service (Section 7508) | |
|---|---|---|
| Who qualifies | Outside the U.S. and Puerto Rico on the due date | Serving in a combat zone, qualified hazardous duty area, or contingency operation |
| How long | Automatic 2 months, to June 15 | 180 days after your last day in the zone, plus the days left in the filing period when you entered |
| Paperwork | No form, but attach a statement explaining the situation | None. No Form 4868 needed |
| Interest and penalties | Interest accrues from the original April deadline on unpaid tax | No penalties and no interest for the suspension period |
The combat zone suspension is broader than filing. It also extends the deadline to make IRA contributions, claim a refund, and respond to IRS notices, collection actions, and audits. If a notice reaches you while deployed, write “COMBAT ZONE” and your deployment date on it and return it.
Spouses filing jointly generally get the same extension as the deployed member. If neither rule applies to you, the ordinary route is the standard six-month extension, covered in our Form 4868 guide. An extension to file has never been an extension to pay.
PCS Moving Expenses, Reservist Travel, and What Survived TCJA
The Tax Cuts and Jobs Act eliminated the moving expense deduction for essentially everyone. Armed Forces members on active duty were the exception, and that carve-out remains in force for 2026.
Who qualifies
You must be a member of the Armed Forces on active duty, and the move must be a permanent change of station made under military orders. A move you choose is not a PCS.
What you can and cannot deduct
- Deductible: reasonable unreimbursed costs of moving household goods and personal effects, storage in transit, and travel including lodging from your old home to your new one. For the vehicle leg you can use actual costs or the standard moving mileage rate.
- Not deductible: meals, house-hunting trips, lavish or extravagant lodging, unnecessary side trips, and temporary living beyond the allowed period.
The 2026 moving mileage rate for members of the Armed Forces changed mid-year, which is unusual and easy to miss. It is 20.5 cents per mile from January 1 through June 30, 2026, and 23.5 cents per mile from July 1 through December 31, 2026. Split your trip legs by date rather than applying a single rate to the year. Our 2026 mileage rate guide and mileage deduction calculator handle the split.
Reimbursements come off first
Overclaiming usually starts here. A government-funded move plus nontaxable moving allowances frequently covers the whole cost, and only the unreimbursed excess is deductible. If the military moved you and paid your dislocation allowance, there may be nothing left to deduct.
Where it goes on the return
Qualifying expenses go on Form 3903, which carries to Schedule 1 (Form 1040), line 14. That is an above-the-line adjustment, so you get it whether or not you itemize.
Reserve component travel over 100 miles
Reserve component members who travel more than 100 miles from home for drill or duty can deduct their unreimbursed travel expenses as an above-the-line adjustment, computed on Form 2106 and carried to Schedule 1. It survived the TCJA suspension of miscellaneous itemized deductions that wiped out most employee expense write-offs.
Two smaller items worth knowing
Uniform costs are deductible only for uniforms you are prohibited from wearing off duty, and only to the extent they exceed any uniform allowance you received. Separately, ROTC subsistence allowance is nontaxable while active-duty ROTC pay, such as summer camp pay, is taxable.
State Residency: SCRA, MSRRA, and Where You Actually File
Federal rules apply the same way in every state, but state rules vary, and this is where a bad assumption gets expensive.
The baseline: SCRA
Under the Servicemembers Civil Relief Act, your military pay is taxable only by your state of legal residence, your domicile, not by the state where you happen to be stationed. Non-military income is different: a side job, a rental property, or a spouse’s business is generally taxable where the income is earned.
MSRRA extended it to spouses
The Military Spouses Residency Relief Act of 2009 extended the same residence protection to spouses, so a spouse who moves to a new duty station does not automatically pick up that state’s residency for tax purposes.
The 2023 residency election
The Veterans Auto and Education Improvement Act of 2022 (P.L. 117-333, signed January 5, 2023) amended SCRA Section 4001. For tax years beginning in 2023 and later, a service member and spouse may elect to use, for both of them, any one of three residences:
- The service member’s residence
- The spouse’s residence
- The permanent duty station
That third option is new, and it is a real planning lever: a couple stationed in a state with no income tax can elect the duty station for both, even if neither of them is domiciled there.
The boundaries
The election governs residence for state tax purposes, and states differ in how they want it documented and how the filing mechanics work. Actually changing your domicile is a separate matter that takes intent plus supporting facts: DD Form 2058, voter registration, driver’s license, vehicle registration. You cannot simply pick a favorable state on a return.
For anything state-specific, use your installation’s legal assistance office or Military OneSource MilTax. Both are free and staffed for exactly this question, which a federal-level article cannot responsibly answer for 50 jurisdictions.
Putting It Together on Your Return
The workflow is simpler than the rules make it sound. Enter your W-2 exactly as printed, because Box 1 already nets out BAH, BAS, and any combat zone pay. Add your dependents. Then decide what to do with Box 12 code Q, and run the return both ways before you commit to the election.
If you want to see the refund number move while you experiment, Tax47 rebuilds the return from real W-2 data and updates the EITC and Child Tax Credit sections live, or start with the tax refund estimator and browse the rest of the calculators.
Sources & References
- IRS Publication 3, Armed Forces’ Tax Guide: the taxable and nontaxable pay tables, the combat zone exclusion, the EITC election, moving expenses, and the extensions.
- IRS: Tax exclusion for combat service: the one-day rule, the officer cap, hospitalization, and the statement that combat pay remains subject to Social Security and Medicare tax.
- IRS: Military and clergy rules for the Earned Income Tax Credit: the election, Box 12 code Q, the spousal combinations, and the stationed-abroad residency rule.
- IRS: Filing extensions for military personnel stationed abroad or in a combat zone: the June 15 rule versus the 180-day suspension and the interest treatment of each.
- IRS: Instructions for Schedule 8812: line 18b nontaxable combat pay and the Additional Child Tax Credit formula.
- IRS: Instructions for Form 3903, Moving Expenses: the Armed Forces carve-out from the TCJA suspension.
- 26 U.S.C. Section 32, Earned income (Cornell LII): Section 32(c)(2)(B)(vi), which limits the election to amounts excluded under Section 112.
- Military OneSource: PCS and Taxes: DoD guidance on the reimbursement offset.
- Military OneSource: Military Spouses Residency Relief Act: the DoD MSRRA explainer.
- Congress.gov: H.R. 7939, Veterans Auto and Education Improvement Act of 2022: the SCRA amendment adding the permanent-duty-station residency election.
This article is for educational purposes only and is not tax, legal, or financial advice. Tax rules change periodically, always check current IRS guidance or consult a qualified tax professional or your installation’s legal assistance office.
Frequently Asked Questions
Is BAH taxable in 2026?
No. Basic Allowance for Housing is a qualified military benefit excluded from gross income under IRC Section 134. It never appears in Box 1 of your W-2, so there is nothing to report and nothing to claim. The exclusion is automatic.
Is BAS taxable?
No. Basic Allowance for Subsistence is excluded on the same footing as BAH. Like BAH, it is left out of W-2 Box 1 automatically. Overseas Housing Allowance and overseas cost-of-living allowances paid by the U.S. government are also excluded.
Is combat pay tax free?
For income tax, yes. For enlisted members and warrant officers, all military pay for any month with at least one day in a designated combat zone is excluded. Commissioned officers are capped at the highest rate of enlisted basic pay plus hostile fire or imminent danger pay for that month. Combat pay is still subject to Social Security and Medicare tax.
Why is Box 1 on my military W-2 lower than what I was paid?
Because BAH, BAS, and any combat zone pay are already excluded from Box 1. Boxes 3 and 5 (Social Security and Medicare wages) will be higher, since combat pay is still subject to FICA even though it escapes income tax. Excluded combat pay appears separately in Box 12 with code Q.
Should I include combat pay as earned income for the EITC?
It depends on your income. Including it can increase the credit if you are still on the phase-in, and decrease it if you are already in the phase-out range. The election is all-or-nothing, and on a joint return each spouse decides separately. Run the return both ways before choosing.
Does combat pay increase the Child Tax Credit?
It can increase the refundable portion. Nontaxable combat pay goes on Schedule 8812, line 18b, which raises the earned income used in the 15%-of-earned-income-over-$2,500 formula for the Additional Child Tax Credit. That often produces a larger refund for a deployed member with children.
How long do I have to file if I was deployed to a combat zone?
At least 180 days after your last day in the combat zone, plus the number of days that were left in the filing period when you deployed. It is automatic, you do not file Form 4868, and no penalties or interest apply for the suspended period. This is different from the automatic June 15 extension for members simply stationed outside the U.S., where interest still runs from the April deadline.
Can I still deduct PCS moving expenses?
Yes. The TCJA suspended the moving expense deduction for almost everyone, but active-duty members moving under military orders for a permanent change of station kept it. Deduct only unreimbursed costs for moving household goods, storage, and travel including lodging (not meals) on Form 3903, which carries to Schedule 1 as an above-the-line deduction.