Taxable and Tax-Free Military Pay: Drill Pay, BAH, BAS and Uniform Allowances
A reserve paycheck is a mix. Some of what the military pays you is taxable income, and some is excluded by law, and the two are easy to confuse when you move between weekend drills and a longer tour of duty. This guide sorts the items using Publication 3 and the Internal Revenue Code, shows how the sorting affects a return, and works one invented year with the arithmetic laid out.
Two lists, one rule of thumb
Publication 3 opens its pay section by saying that members of the Armed Forces receive many kinds of pay and allowances, some included in gross income and some excluded. It then gives two tables: one of government pay that is included in gross income and one of items that are excluded. The publication adds that the excluded list is not exclusive, and that an excluded item may still need to be reported on your return. In short, pay for your work is taxable, and many allowances meant to cover living costs are not. This guide leaves the combat zone rules aside, because they change the answer for a different reason.
What is taxable, including on reserve duty
Under the included list, basic pay is taxable, and the list of basic pay items covers active duty, attendance at a designated service school, back wages, drills, reserve training and training duty. So the pay you earn at a drill weekend and the pay you earn on a longer tour are in the same category. The tax rule does not depend on whether you were on weekend drills or on orders.
The same list names bonus pay (career status, continuation, enlistment, officer, overseas extension and reenlistment), incentive pay (submarine, flight, hazardous duty and HALO) and a group called other pay that includes accrued leave, CONUS COLA and high deployment per diem. It also includes the personal use of a government-provided vehicle. The table below groups what Publication 3 says is included.
| Category | Examples named in Publication 3 | Treatment |
|---|---|---|
| Basic pay | Active duty, drills, reserve training, training duty, service school | Included in gross income |
| Bonus pay | Enlistment, reenlistment, continuation, officer | Included |
| Incentive pay | Flight, submarine, hazardous duty, HALO | Included |
| Other pay | Accrued leave, CONUS COLA, high deployment per diem | Included |
| In-kind benefit | Personal use of a government-provided vehicle | Included |
What is excluded
The excluded list is shorter to describe and it is where the allowances live. Publication 3 says the exclusion applies whether an item is furnished in kind or is a reimbursement or allowance. Under living allowances it lists BAH and BAS.
It also lists uniform allowances, uniforms furnished to enlisted personnel, commissary and exchange discounts, space-available travel on government aircraft and several travel allowances, including per diem. The excluded list is therefore a mix of cash allowances and in-kind benefits, which is why a paycheck can look larger than the amount on which you owe tax.
| Category | Examples named in Publication 3 | Treatment |
|---|---|---|
| Living allowances | BAH, BAS | Excluded |
| Clothing | Uniform allowances; uniforms furnished to enlisted personnel | Excluded |
| Travel allowances | Per diem, certain family travel | Excluded |
| In-kind benefits | Commissary and exchange discounts, space-available flights | Excluded |
The statute behind the exclusion
The Internal Revenue Code gives the idea its legal form. Section 134 says gross income does not include any qualified military benefit, and it defines that term as an allowance or in-kind benefit, other than personal use of a vehicle, received by a servicemember or dependent because of military status or service and excludable from gross income under rules in effect on September 9, 1986. That is why an allowance created later does not automatically become tax free: the statute ties the exclusion to what was excludable on that earlier date, subject to exceptions we did not review.
Drill weekends versus longer tours
The IRS tables sort pay by type, not by duty status. They do not tell you which allowances a reservist receives for a drill weekend and which only for a longer period of orders. That answer comes from military pay rules, published by the finance agency, which this guide does not state, because we could not retrieve those tables in a form we can check. The practical step is to read your leave and earnings statement for each period, mark each line taxable or excluded using the lists above, and compare the total with your Form W-2 at filing time.
A worked example with invented numbers
An invented reservist has the following year: $7,200 of drill pay, $4,200 of basic pay for a short tour, a $350 payout for accrued leave, and during the tour $1,860 of BAH and $460 of BAS. Only the first three are on the included list.
| Item | Amount | Included in gross income? |
|---|---|---|
| Drill pay | $7,200 | Yes |
| Basic pay, short tour | $4,200 | Yes |
| Accrued leave payout | $350 | Yes |
| BAH | $1,860 | No |
| BAS | $460 | No |
| Total received | $14,070 | |
| Taxable total | $11,750 |
The allowances add up to $2,320. Suppose someone wrongly added them and the hypothetical marginal rate were 12 percent: they would overpay $278.40. The 12 percent is an invented figure for the arithmetic and is not a recommendation about any bracket.
Where the excluded pay still matters
Publication 3 lists BAH, BAS and any other nontaxable employee compensation among the amounts you do not count as earned income for the earned income credit. In the example, earned income on that basis would be $11,750, not $14,070. Pay that is excluded from income is therefore also left out of the credit calculation, apart from a combat zone election described elsewhere.
The second effect is on deductions. Publication 3 says excluded BAH does not stop you from deducting expenses paid with it. You may still be able to deduct mortgage interest and real estate taxes on your home if you pay them with your BAH. The allowance is not income, but the tax breaks tied to owning the home are separate rules.
Per diem works differently from housing money. Publication 3 lists per diem as an excluded travel allowance, and it also lets a reservist deduct only unreimbursed travel expenses. So a per diem paid on your orders is not both tax free and deductible: it covers the cost, and the costs it covered are not unreimbursed. The reimbursed travel guide walks through how that interacts with your Form 2106.
How it shows up on your W-2
Publication 3 says Form W-2 shows your total pay and other compensation and the taxes withheld. The sources we reviewed do not say line by line how each excluded allowance is reported on a W-2. That is the reason for reading your pay statements against the W-2 before you file: if a number in box 1 looks higher than the taxable lines of your statements, ask your finance office for an explanation before you sign the return.
Mistakes to avoid
- Treating all of a tour's pay as excluded. Only the allowances on the excluded list are; basic pay is not.
- Counting BAH or BAS as earned income when figuring the credit.
- Skipping the home deductions because the housing money was tax free.
- Deducting travel costs that a per diem already covered.
Related guides
- Other tax breaks: benefits beyond the travel deduction.
- Reimbursed drill travel: how reimbursements change the deduction.
- Drill pay calculator: estimating gross reserve pay.
- Glossary: terms used on this site.
- The reservist form, line by line: where reserve travel costs are figured.