Military Tax Benefits & Deductions You Should Be Claiming 2025
- tress14plaid
- Mar 17
- 7 min read
Updated: Mar 18
Table of Contents
Introduction
Military service comes with unique financial challenges—and significant tax advantages. Whether you're active duty, a reservist, or a veteran, understanding these military-specific tax benefits can save you thousands of dollars each year.
This guide covers the most valuable tax breaks available to service members in 2025, with practical tips to help you claim every deduction you've earned through your service.
Combat Zone Tax Exclusions
One of the most significant tax benefits for service members is the Combat Zone Tax Exclusion. When serving in designated combat zones, certain pay becomes tax-free.
Additional details:
The IRS maintains a list of officially designated combat zones, which currently includes the Arabian Peninsula Area, Kosovo, Afghanistan, and several other regions.
The exclusion applies to the entire month in which you serve at least one day in a combat zone.
For enlisted personnel and warrant officers, all active duty pay earned in a combat zone is tax-free.
For officers, the exclusion is capped at the highest enlisted pay rate plus any imminent danger/hostile fire pay.
This exclusion can significantly reduce your taxable income, potentially placing you in a lower tax bracket for any remaining taxable income.
What qualifies:
Basic pay for active duty or reserve service in combat zones
Imminent danger/hostile fire pay
Reenlistment bonuses (if reenlisting in a combat zone)
Student loan repayments (if payment is due while in a combat zone)
Documentation needed:
Deployment orders specifying combat zone service
Leave and Earnings Statements (LES) showing combat zone service
How to claim it: The exclusion should be reflected on your W-2, with combat pay shown in Box 12 with code Q. Verify this information is correct before filing.
Military PCS Moving Expense Tax Deductions
While the Tax Cuts and Jobs Act eliminated moving expense deductions for civilians, military members retained this valuable benefit for Permanent Change of Station (PCS) moves.
What qualifies:
Unreimbursed costs for moving household goods
Transportation and storage expenses
Temporary lodging expenses
How to claim it: Use IRS Form 3903 to report moving expenses related to your PCS orders.
Additional details:
This deduction survived the Tax Cuts and Jobs Act of 2017, which eliminated moving expense deductions for civilians.
You can deduct unreimbursed expenses even if you don't itemize deductions.
Eligible expenses include transportation of household goods, personal effects, and storage.
If your spouse and dependents move to or from a different location than your new duty station, these expenses may also qualify.
Note: Keep all receipts related to your move, even for expenses covered by your allowances, as some unreimbursed costs may be deductible.
Uniform Deductions
The cost of purchasing and maintaining uniforms not suitable for everyday civilian wear may be deductible if not covered by a uniform allowance.
What qualifies:
Cost of required uniforms not adaptable to civilian wear
Alterations and maintenance (dry cleaning, repairs)
Required accessories (insignia, epaulets, swords)
How to claim it: These expenses must be itemized on Schedule A and are subject to the 2% AGI limitation for miscellaneous itemized deductions.
Additional details:
The key test is whether the uniform is suitable for regular civilian wear. If you could reasonably wear it off-duty, it's not deductible.
Dress uniforms are generally not deductible because they can be worn in civilian settings.
Combat uniforms, specialty uniforms, and required accessories are typically deductible.
You can only deduct costs that exceed any uniform allowance you receive.
These deductions must be itemized on Schedule A and are subject to the 2% of AGI floor for miscellaneous itemized deductions.
Note: With the increased standard deduction since 2018, this deduction is most valuable if you're already itemizing for other reasons.
Education Tax Benefits
Whether using military education benefits or paying out-of-pocket, several tax incentives can help offset education costs.
Available benefits:
American Opportunity Credit (up to $2,500)
Lifetime Learning Credit (up to $2,000)
Student loan interest deduction (up to $2,500)
Additional details:
The American Opportunity Credit provides up to $2,500 per eligible student for the first four years of post-secondary education.
The Lifetime Learning Credit offers up to $2,000 per tax return for qualified education expenses at an eligible institution.
The student loan interest deduction allows you to deduct up to $2,500 in interest paid on qualified student loans.
You can claim these benefits for yourself, your spouse, or your dependents.
Income limits apply: The American Opportunity Credit begins to phase out at $80,000 for single filers and $160,000 for joint filers, while the Lifetime Learning Credit begins to phase out at $80,000 for single filers and $160,000 for joint filers.
Note: If you used the GI Bill or other military education benefits, those expenses aren't eligible for education credits since they weren't out-of-pocket costs.
Reservist and National Guard Benefits
Reservists and National Guard members face unique expenses that may qualify for tax deductions.
What qualifies:
Unreimbursed travel expenses (lodging, meals, transportation) when serving more than 100 miles from home
Uniform costs and maintenance
How to claim it: For travel deductions, you don't have to itemize—this is an "above the line" deduction on Schedule 1.
Additional details:
Eligible expenses include lodging, meals (subject to 50% limitation), and transportation.
You must keep detailed records of these expenses, including dates, locations, purpose, and receipts.
For travel by personal vehicle, you can deduct the standard mileage rate for military moves (22 cents per mile in 2024).
This deduction can be substantial for reservists who travel significant distances for training or duty.
Tax-Advantaged Accounts
Service members have access to several tax-advantaged savings opportunities:
Contributions lower your taxable income (traditional) or grow tax-free (Roth)
In 2025, you can contribute up to $23,000 ($30,500 if over 50)
Combat zone contributions to Roth TSP can exceed normal limits
Supplement your TSP with additional retirement savings
Combat zone pay can be contributed to IRAs, even if it's tax-exempt
Additional details:
The Thrift Savings Plan (TSP) is similar to a 401(k) but with extremely low fees.
Military members can also contribute to Individual Retirement Accounts (IRAs) to supplement their TSP savings.
Dependent-Related Tax Benefits
Military families with dependents should take advantage of these benefits:
Child Tax Credit:
Up to $2,000 per qualifying child under 17
Partially refundable, meaning you might get money back even if you don't owe taxes
Child and Dependent Care Credit:
If you pay for childcare while working, you may qualify for this credit
Worth up to 35% of qualifying expenses ($3,000 for one dependent, $6,000 for two or more)
Additional details:
Military families should consider the impact of state residency on dependent benefits, as some states offer additional tax credits.
Military childcare expenses, including those for Family Child Care (FCC) homes on base, may qualify for the Child and Dependent Care Credit.
The ability to maintain legal residency in a state without income tax can provide additional savings for military families.
Best Practices for Maximizing Military Tax Benefits
Follow these strategies to ensure you're not leaving money on the table:
Stay organized year-round:
Create a digital or physical folder for tax documents
Save receipts for potentially deductible expenses
Keep copies of orders, especially for combat zone service and PCS moves
Work with a knowledgeable tax professional:
Find someone experienced with military tax situations
Many bases offer free tax preparation services through VITA
Leverage technology:
Use expense tracking apps to log potential deductions
Consider military-specific tax preparation software
Plan strategically:
Time major purchases or education expenses to maximize deductions
Consider tax implications of promotion, PCS, or deployment timing
Remember, these tax benefits recognize the unique sacrifices of military service. Taking full advantage of them isn't just smart financial planning—it's claiming benefits you've earned through your service to the country.
Military Tax Benefits Summary Table
Benefit Category | Key Points | Documentation Needed | How to Claim |
Combat Zone Tax Exclusions | • Basic pay for combat zone service is tax-free • Imminent danger/hostile fire pay exempt • Reenlistment bonuses in combat zones exempt • Student loan repayments during combat zone service exempt • Officers' exclusion capped at highest enlisted pay rate | • Deployment orders • Leave and Earnings Statements (LES) | • Verify W-2 shows combat pay in Box 12 with code Q • No additional forms needed if W-2 is correct |
PCS Moving Expense Deductions | • Unreimbursed costs for moving household goods • Transportation and storage expenses • Temporary lodging expenses • Spouse and dependent moves may qualify • Available even if not itemizing | • PCS orders • Receipts for all moving expenses • Documentation of reimbursements | • IRS Form 3903 • Deduct on Form 1040 as an adjustment to income |
Uniform Deductions | • Required uniforms not adaptable to civilian wear • Alterations and maintenance costs • Required accessories (insignia, etc.) • Only costs exceeding uniform allowance | • Receipts for uniform purchases • Documentation of uniform allowance received | • Schedule A (itemized deductions) • Subject to 2% AGI limitation for miscellaneous deductions |
Education Tax Benefits | • American Opportunity Credit (up to $2,500) • Lifetime Learning Credit (up to $2,000) • Student loan interest deduction (up to $2,500) • Not available for expenses covered by GI Bill | • Form 1098-T from educational institution • Records of qualified expenses paid • Form 1098-E for student loan interest | • Form 8863 for education credits • Student loan interest claimed on Schedule 1 |
Reservist/National Guard Benefits | • Travel expenses when serving 100+ miles from home • Lodging, meals (50% limitation), transportation • Uniform costs and maintenance • Mileage for military moves (22¢ per mile in 2024) | • Travel orders • Receipts for expenses • Mileage logs | • Schedule 1 for travel expenses (above-the-line deduction) • Schedule A for uniform expenses (itemized) |
Tax-Advantaged Accounts | • TSP contributions up to $23,000 in 2025 ($30,500 if over 50) • Combat zone contributions to Roth TSP can exceed normal limits • IRA contributions up to $7,000 in 2025 ($8,000 if over 50) • Combat zone pay can be contributed to IRAs | • TSP contribution statements • IRA contribution statements | • TSP contributions reflected on W-2 • IRA contributions reported on Form 8606 (Roth) or Form 1040 (Traditional) |
Dependent-Related Benefits | • Child Tax Credit (up to $2,000 per child under 17) • Child and Dependent Care Credit (up to 35% of qualifying expenses) • Special needs dependent benefits • State-specific benefits | • Birth certificates • Social Security numbers • Childcare provider information | • Schedule 8812 for Child Tax Credit • Form 2441 for Child and Dependent Care Credit |
Best Practices | • Stay organized year-round • Work with knowledgeable tax professionals • Use military-specific tax software • Plan major financial decisions with tax implications in mind • Consider state tax residency implications | • Digital or physical tax document folder • Military orders and documentation • Financial planning calendar | • Utilize free on-base VITA tax preparation services • Consult with Military OneSource for free tax advice |
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