Serving in the U.S. Armed Forces brings distinctive financial challenges—and some well-deserved tax advantages. As someone whose sister currently serves in the U.S. Navy, I’ve seen firsthand how understanding and claiming these benefits can make a real difference at filing time. Here are some potential benefits available to active-duty personnel, reservists and veterans.
Combat Zone Exclusion
Generally, income earned from employment is taxable, but certain exceptions may apply. For example, if you're a member of the Armed Forces serving in a designated combat zone—or were hospitalized for wounds, disease or injury incurred while serving there—you can exclude the pay you receive in several situations.
This includes active-duty pay earned in any month served in a combat zone, imminent-danger or hostile-fire pay, and re-enlistment bonuses that extend into any month served in a combat zone. Also while serving in a combat zone, you can exclude pay for accrued leave earned in any month and part of any student loan repayment made for the year.
Important: The combat zone exclusion doesn't cover payments from a retirement plan or pension. Other special rules may apply.
Filing and Payment Extensions
Bear in mind, the IRS generally won't accept a joint tax return unless both spouses sign it. But if one spouse is absent and can't sign because of military duties or conditions, the other spouse can sign in his or her place. In other cases, a power of attorney is generally required. A military installation's legal office may be able to lend assistance.
Write-Off for Uniform Expenses
Before 2018, military service members who itemized their federal income tax returns could, under limited circumstances, deduct unreimbursed expenses for uniforms not suitable for everyday wear (including cleaning and upkeep) as miscellaneous itemized deductions. This tax break was subject to a 2% of adjusted gross income (AGI) floor.
The Tax Cuts and Jobs Act (TCJA) suspended most miscellaneous employee-expense write-offs for tax years 2018 through 2025. The One Big Beautiful Bill Act (OBBBA), enacted in 2025, made that suspension permanent beginning in 2026. As a result, unreimbursed expenses for military uniforms and their upkeep remain nondeductible at the federal level, with no scheduled expiration. Some states—California, for instance—continue to allow deductions for uniform expenses on state income tax returns.
Deduction for Moving Costs
The TCJA suspended the moving expense deduction for all employees other than active-duty military members for tax years 2018 through 2025. That suspension was scheduled to expire after 2025. However, the OBBBA made the suspension permanent for most taxpayers.
Fortunately, the OBBBA retained the exception for active-duty military members and added a new one, starting in 2026, for qualifying "intelligence community members." If you're eligible, you may deduct unreimbursed moving expenses related to travel and the cost of transporting household goods and personal effects.
Exclusion of Gain from Home Sale
Generally, single taxpayers can exclude up to $250,000 of gain from the sale of a home if they've owned and used the home as their principal residence for at least two of the five years before the sale. Married couples who file jointly can exclude up to $500,000 under the same circumstances.
However, the five-year look-back period may be suspended for up to 10 years during "qualified official extended duty." This effectively gives eligible military service members up to 15 years to meet the two-year ownership and use tests.
Deduction for Travel Expenses as a Reservist
If you travel as a member of the Armed Forces Reserves, you can generally deduct unreimbursed travel expenses while performing reserve duties more than 100 miles from your home. You may also be able to deduct the costs of overnight stays, such as meals and lodging. The deductible amount of these expenses—claimed under AGI—is limited to the regular federal per diem rate for lodging, meals and incidental expenses.
Important: You don't need to itemize deductions on your tax return to take advantage of this break.
Tax-Free Benefits for Veterans
Are you a retired military veteran? If so, there's a wide range of tax-free benefits to explore. Examples include:
However, if you receive a disability pension based on your years of service, you must include that amount or portion of a pension in your taxable income.
The WOTC: A Win-Win for Businesses and Veterans
The Work Opportunity Tax Credit (WOTC) is a valuable federal incentive designed to encourage businesses to hire individuals who face barriers to employment—including qualified military veterans. The credit can reduce federal income taxes for business owners while helping former service members transition to civilian careers.
Eligible veterans include those who are:
Depending on the category and length of employment, the credit can be worth up to $9,600 per qualifying hire. To claim the credit,
The WOTC applies to full-time, part-time and seasonal workers in nearly all industries, making it accessible to both small businesses and larger companies. Although the credit doesn't affect an employee's wages or benefits, it can significantly lower a company's overall tax burden. Plus, by taking advantage of the WOTC, employers strengthen their workforces while helping veterans build their lives after leaving military service.
Important: Time may be limited for employers to take advantage of this credit. Unless Congress passes legislation to extend the WOTC, it's currently scheduled to expire on December 31, 2025.
Fighting for Your Rights
Serving our country often comes with distinctive financial challenges. Fortunately, the federal tax code recognizes that sacrifice through special benefits for active-duty personnel and veterans. Work with your SSB tax advisor to ensure you're making the most of the breaks you've earned.
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