This publication covers the special tax situations of active members of the U.S. Armed Forces. It does not cover military pensions or veterans' benefits or give the basic tax rules that apply to all taxpayers. For information on military pensions or veterans' benefits, see Publication 525, Taxable and Nontaxable Income. If you need the basic tax rules or information on another subject not covered here, you can check our other free publications. See Publication 910, IRS Guide to Free Tax Services, for a list and descriptions of the different tax publications.

For federal tax purposes, the U.S. Armed Forces includes commissioned officers, warrant officers, and enlisted personnel in all regular and reserve units under control of the Secretaries of the Defense, Army, Navy, and Air Force. The U.S. Armed Forces also includes the Coast Guard. It does not include the U.S. Merchant Marine or the American Red Cross.

Members serving in an area designated or treated as a combat zone are granted special tax benefits. In the event an area ceases to be a combat zone, the IRS will do its best to notify you. Many of the relief provisions will end at that time.

We welcome your comments about this publication and your suggestions for future editions.

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Internal Revenue Service
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SE:W:CAR:MP:T:I
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If you have a tax question, check the information available on IRS.gov or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.

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Members of the Armed Forces receive many different types of pay and allowances. Some are included in gross income while others are excluded from gross income. Included items ( Table 1) are subject to tax and must be reported on your tax return. Excluded items ( Table 2) are not subject to tax, but may have to be shown on your tax return.

For information on the exclusion of pay for service in a combat zone and other tax benefits for combat zone participants, see Combat Zone Exclusion and Extension of Deadlines, later.

You can still deduct mortgage interest and real estate taxes on your home if you pay these expenses with your BAH.

Any death gratuity paid to a survivor of a member of the Armed Forces is excluded from gross income.

Differential wage payments are any payments made by an employer to an individual for a period during which the individual is performing service in the uniformed services while on active duty for a period of more than 30 days and that represent all or a portion of the wages the individual would have received from the employer if the individual was performing services for the employer. These amounts are taxable and cannot be excluded as combat pay.

Payments made under the Homeowners Assistance Program (HAP) generally are excluded from income. However, the excludable amount cannot be more than the maximum amount described in subsection (c) of 42 USC 3374 as in effect on November 6, 2009. Any part of the payment that is more than this limit is included in gross income. For more information about the HAP, see http://hap.usace.army.mil/Overview.html.

A QRD is a distribution to an individual of all or part of the individual's balance in a cafeteria plan or health flexible spending arrangement if:

• The individual was a reservist who was ordered or called to active duty for more than 179 days or for an indefinite period, and
• The distribution is made no sooner than the date the reservist was ordered or called to active duty and no later than the last day reimbursements could otherwise be made under the arrangement for the plan year which includes the date of the order or the call to duty.

A QRD is included in gross income and is subject to employment taxes. The employer must include the QRD (reduced by after-tax contributions to the health flexible spending arrangement) as wages on Form W-2, Wage and Tax Statement.

If you participate in the Uniformed Services TSP and receive a distribution from you account, the distribution is generally included in your taxable income.

If your contributions included tax-exempt combat zone pay, the part of the distribution attributable to those contributions is tax exempt. However, the earnings on the tax-exempt portion of the distribution are taxable. The TSP will provide a statement showing the taxable and non-taxable portions of the distribution.

You can get more information from the TSP website, www.tsp.gov, or the TSP Service Office.

Bonus payments made by a state (or a political subdivision thereof) to a member or former member of the uniformed services of the United States or to a dependent of such member are considered combat pay (and therefore may not be taxable) if the payments are made only because of the member's service in a combat zone. See Combat Zone, later, for a list of designated combat zones.

If you are a U.S. citizen with income from sources outside the United States (foreign income), you must report all of that income (except for amounts that U.S. law allows you to exclude) on your tax return. This is true whether you reside inside or outside the United States and whether or not you receive a Form W-2 or a Form 1099. This applies to earned income (such as wages and tips) as well as unearned income (such as interest, dividends, capital gains, pensions, rents, and royalties).

Certain taxpayers can exclude income earned in foreign countries. For 2011, this exclusion amount can be as much as $92,900. However, the foreign earned income exclusion does not apply to the wages and salaries of military and civilian employees of the U.S. Government. Employees of the U.S. Government include those who work at United States Armed Forces exchanges, commissioned and noncommissioned officers' messes, Armed Forces motion picture services, and similar personnel. Other foreign income earned by military personnel or their spouses may be eligible for the foreign earned income exclusion. For more information on the exclusion, see Publication 54.

Residents of American Samoa may be able to exclude income from American Samoa. This possession exclusion does not apply to wages and salaries of military and civilian employees of the U.S. Government. If you need information on the possession exclusion, see Publication 570, Tax Guide for Individuals With Income From U.S. Possessions.

If you are the civilian spouse of an active duty U.S. military servicemember, you can choose to keep your prior residence or domicile for tax purposes when you accompany the servicemember spouse, who is relocating under military orders to a new duty station in one of the 50 states, the District of Columbia, or a U.S. possession. See Publication 570 for more information.

The pay you earn as a member of the Armed Forces may be subject to community property laws depending on your marital status, your domicile, and the nature of the payment. The community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Community property rules apply to married persons whose domicile during the tax year was in a community property state. The rules may affect your tax liability if you file separate returns or are divorced during the year.

Your domicile is the permanent legal home you intend to use for an indefinite or unlimited period, and to which, when absent, you intend to return. It is not always where you presently live.

Active duty military pay is subject to community property laws. Armed Forces retired or retainer pay may be subject to community property laws.

For more information on community property laws, see Publication 555, Community Property.

Form W-2 shows your total pay and other compensation and the income tax, social security tax, and Medicare tax that was withheld during the year.

Form W-2 also shows other amounts that you may find important in box 12. The amounts shown in box 12 are generally preceded by a code. A list of codes used in box 12 is shown below.

A	Uncollected social security or RRTA	J	Nontaxable sick pay	T	Adoption benefits
	tax on tips
		K	20% excise tax on excess golden	V	Income from exercise of
B	Uncollected Medicare tax on tips		parachute payments		nonstatutory stock option(s)
C	Taxable cost of group-term life	L	Substantiated employee business	W	Employer contributions (including
	insurance over $50,000		expense reimbursements		employee contributions through a
					cafeteria plan) to an employee's
D	Elective deferrals under a section	M	Uncollected social security or RRTA		health savings account (HSA)
	401(k) cash or deferred arrangement		tax on taxable cost of group-term life
	plan (including a SIMPLE 401(k)		insurance over $50,000 (former	Y	Deferrals under a section 409A
	arrangement)		employees only)		nonqualified deferred
					compensation plan
E	Elective deferrals under a section	N	Uncollected Medicare tax on taxable
	403(b) salary reduction agreement		cost of group-term life insurance	Z	Income under section 409A on a
			over $50,000 (former employees only)		nonqualified deferred
F	Elective deferrals under a section				compensation plan
	408(k)(6) salary reduction SEP	P	Excludable moving expense
			reimbursements paid directly to	AA	Designated Roth contributions
G	Elective deferrals and employer		employee		under a section 401(k) plan
	contributions (including nonelective
	deferrals) to a section 457(b)	Q	Nontaxable combat pay	BB	Designated Roth contributions
	deferred compensation plan				under a section 403(b) plan
		R	Employer contributions to an Archer
H	Elective deferrals to a section		MSA	DD	Cost of employer-sponsored
	501(c)(18)(D) tax-exempt				health coverage
	organization plan	S	Employee salary reduction contributions under a section 408(p) SIMPLE	EE	Designated Roth contributions under a governmental section 457(b) plan
Note. For more information on these codes, see your Form(s) W-2.