In addition to having several tax acts and programs that give people in the military a little bit of tax relief, there are also many types of military pay and benefits that are excluded from their taxable income. Living allowances such as Basic Allowance for Housing is not taxable, and you can still deduct your mortgage interest and real estate taxes on your 1040 even if you use your BAH to pay them. Basic Allowance for Subsistence, housing and cost-of-living allowances, and Overseas Housing Allowance benefits are also not taxable.
Moving allowances such as dislocation, military base realignment and closure benefit paid after November 11, 2003, move-in housing, moving household and personal items, moving trailers or mobile homes, storage, temporary lodging and other related expenses that are paid as a military benefit are also not included in your taxable income, nor are travel allowance, family allowances, or death allowances.
Combat zone pay is generally not taxable unless you are an officer. In that case, there are limits to the maximum amount of combat zone pay that can be excluded from your taxable income.
Other payments like defense counseling, disability, group-term life insurance, professional education, ROTC educational and subsistence allowance, survivor and retirement protection plan premiums, uniform allowances, and uniforms furnished to enlisted personnel are all non-taxable military payments. Finally, in addition to all of the above non-taxable benefits and payments, any and all dependent care assistance, legal assistance, medical and dental care, commissary/exchange discounts, and space-available travel on government aircraft paid for by the military in the name of the military member are also not taxable, and are excluded from your W-2 tax form income statement.