Pay, pay raises, pay allowances, pay charts - Air Force Times

Federal Income Tax

Service members pay federal income tax on basic pay, bonuses and most special pays, and they also pay state income taxes. Military allowances, including housing and subsistence allowances, generally are tax-exempt.

When members receive taxable pay, the military generally withholds the proper amount automatically from their paychecks. However, it does not withhold taxes on student loan repayments; military members who benefit from this program may need to make estimated tax payments.

Legal assistance offices can provide details on taxes, and base disbursing offices have details on what pay is taxable.

Service members may realize tax benefits in these ways:

Hostile-fire zones

Military personnel who serve in a combat zone or hazardous-duty area earn certain tax exemptions. These areas are:

•Afghanistan, designated a combat zone effective Sept. 19, 2001. The combat zone includes all of Afghanistan and the airspace above it. In addition, many service members serving in areas certified by the secretary of defense as directly supporting operations in Afghanistan qualify for combat-zone tax status if they also are drawing imminent-danger or hostile-fire pay in connection with their duties. These include Kyrgyzstan, Pakistan, Tajikistan, Uzbekistan, Jordan, Yemen, Djibouti and troops on Operation Enduring Freedom orders in the Philippines.

•The Balkans, designated a combat zone March 24, 1999. The combat zone includes Serbia, Montenegro, Albania, the Adriatic Sea and the Ionian Sea north of the 39th Parallel.

•Bosnia, designated a qualified hazardous-duty area Nov. 21, 1995, and treated as a combat zone as long as members qualify for imminent danger pay or hostile fire pay. The zone includes Bosnia and Herzegovina, Croatia and Macedonia.

•Iraq and the Persian Gulf region, designated a combat zone Jan. 17, 1991. The zone includes Saudi Arabia, Kuwait, Iraq, Oman, Bahrain, Qatar, and the United Arab Emirates. It also includes the Persian Gulf, Red Sea, Gulf of Aden and a portion of the Arabian Sea.

Pay received by enlisted personnel and warrant officers serving in the zones after the specified dates are exempt from federal tax. Most states provide similar exemptions.

Commissioned officers do not receive a full tax exemption; their exclusion is limited to the highest monthly rate of enlisted pay, plus their $225 monthly imminent-danger pay. For 2007, this means officers must pay income taxes on any monthly pay above $6,642.60, the rate paid to the military services’ senior enlisted advisers, plus $225, a total of $6,867.60.

Generally, this affects only O-5s and above.

Bonuses earned in combat zones also are not taxed. Service members who re-enlist in Kuwait, for example, do not have federal taxes deducted from their re-enlistment bonus or subsequent installments received after returning home.

In some circumstances, tax exemptions extend past the time spent in theater. Personnel hospitalized with wounds, disease or injuries sustained while serving in a combat zone are not subject to tax on their military pay for up to two years after the area is no longer considered a combat zone.

All personnel involved in Central Asia, Persian Gulf, Bosnia and Kosovo operations can find the taxable amount of their pay in Box 1 of the W-2 form. If it looks too high, ask finance officers to verify it or issue a corrected W-2 form.

Servicemembers’ Civil Relief Act

This law prevents states from taxing service members in the situations listed below:

•Service members do not have to pay personal property taxes, except to their state of legal residence. This applies only to property that is titled solely in the member’s name.

Property owned jointly by a service member and a civilian is subject to taxes. Service members are subject to local taxes on real property such as homes.

•Only one state can collect income taxes from military personnel — the state of legal residence. That does not have to be the state in which the service member is stationed.

Note that family members are not protected by the Servicemembers’ Civil Relief Act. They can be taxed by more than one state on personal property, for example.