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Publication 3

Armed Forces' Tax Guide


What's New(p2)



State bonus payments.(p2)

Bonus payments made by a state (or a political subdivision thereof) for service in a combat zone may not be taxable. See State bonus payments, later under Gross Income.

Earned income credit.(p2)

The maximum amount of income you can earn and still claim the earned income credit has increased. You may be able to take the credit if you earned less than $38,646 ($41,646 for married filing jointly) if you have two or more qualifying children; $33,995 ($36,995 for married filing jointly) if you have one qualifying child; and, $12,880 ($15,880 for married filing jointly) if you do not have any qualifying children. See Earned Income Credit, later, under Credits.

Standard mileage rate.(p2)

The standard mileage rate for the cost of operating your car for business use in 2008 is 50.5 cents a mile (58.5 cents a mile after June 30, 2008). The standard mileage rate for operating your car during 2008 to get medical care or to move is 19 cents a mile (27 cents a mile after June 30, 2008).

Recovery rebate credit.(p2)

You may be able to claim the recovery rebate credit for 2008. See Recovery Rebate Credit, later, under Credits.




Change of address.(p2)

If you change your mailing address, be sure to notify the Internal Revenue Service (IRS) using Form 8822, Change of Address. Mail it to the Internal Revenue Service Center for your old address. (Addresses for the Service Centers are on the back of the form.)

Third party designee.(p2)

You can check the Yes box in the Third Party Designee area of your return to authorize the IRS to discuss your return with a friend, family member, or any other person you choose. This allows the IRS to call the person you identified as your designee to answer any questions that may arise during the processing of your tax return. It also allows your designee to perform certain actions. See your income tax package for details.

Photographs of missing children.(p2)

The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.


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.

Comments and suggestions.(p2)


We welcome your comments about this publication and your suggestions for future editions.
You can write to us at the following address:

Internal Revenue Service 
Individual Forms and Publications Branch 
1111 Constitution Ave. NW, IR-6526 
Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.
You can email us at * (The asterisk must be included in the address.) Please put "Publications Comment" on the subject line. Although we cannot respond individually to each email, we do appreciate your feedback and will consider your comments as we revise our tax products.

Ordering forms and publications.(p2)

Visit to download forms and publications, call 1-800-829-3676, or write to the address below and receive a response within 10 days after your request is received.

Internal Revenue Service 
1201 N. Mitsubishi Motorway 
Bloomington, IL 61705-6613


Tax questions.(p2)

If you have a tax question, check the information available on or call 1-800-829-1040. We cannot answer tax questions sent to either of the above addresses.


Useful items

You may want to see:

 54 Tax Guide for U.S. Citizens and Resident Aliens Abroad
 463 Travel, Entertainment, Gift, and Car Expenses
 501 Exemptions, Standard Deduction, and Filing Information
 503 Child and Dependent Care Expenses
 505 Tax Withholding and Estimated Tax
 516 U.S. Government Civilian Employees Stationed Abroad
 519 U.S. Tax Guide for Aliens
 521 Moving Expenses
 523 Selling Your Home
 525 Taxable and Nontaxable Income
 527 Residential Rental Property
 529 Miscellaneous Deductions
 553 Highlights of 2008 Tax Changes
 559 Survivors, Executors, and Administrators
 590 Individual Retirement Arrangements (IRAs)
 596 Earned Income Credit (EIC)
 970 Tax Benefits for Education
 3920 Tax Relief for Victims of Terrorist Attacks
Form (and Instructions)
 1040X: Amended U.S. Individual Income Tax Return
 1310: Statement of Person Claiming Refund Due a Deceased Taxpayer
 2848: Power of Attorney and Declaration of Representative
 3903: Moving Expenses
 4868: Application for Automatic Extension of Time To File U.S. Individual Income Tax Return
 8822: Change of Address
 9465: Installment Agreement Request
See How To Get Tax Help, near the end of this publication, for information about getting IRS publications and forms.

Gross Income(p3)


previous topic occurrence Gross Income next topic occurrence

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.

Table 1. Included Items

These items are included in gross income, unless the pay is for service in a combat zone.

Basic pay• Active duty Bonuses• Career status
 • Attendance at a designated service school  • Enlistment
 • Back wages  • Officer
 • CONUS COLA  • Overseas extension
 • Drills   • Reenlistment
 • Reserve training   
 • Training duty    
   Other payments • Accrued leave
Special • Aviation career incentives   • High deployment per diem
pay• Career sea  • Personal money allowances paid to
 • Diving duty    high-ranking officers
 • Foreign duty (outside the 48 contiguous  • Student loan repayment from programs
  states and the District of Columbia)    such as the Department of Defense
 • Foreign language proficiency   Educational Loan Repayment Program
 • Hardship duty   when year's service (requirement) is not
 • Hostile fire or imminent danger    attributable to a combat zone
 • Medical and dental officers    
 • Nuclear-qualified officers  Incentive pay• Submarine
 • Optometry   • Flight
 • Pharmacy  • Hazardous duty
 • Special duty assignment pay   • High altitude/Low altitude (HALO)
 • Veterinarian   

Death gratuity.(p4)


Any death gratuity paid to a survivor of a member of the Armed Forces is nontaxable.

Military base realignment and closure benefit.(p4)


Payments made under the Homeowners Assistance Program (HAP) generally are excluded from income. However, the excludable amount cannot be more than the following limit: Any part of the payment that is more than this limit is included in income.

State bonus payments.(p4)


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 received nontaxable bonus payments in an earlier year and reported them as taxable income, you may be able to amend your return for that year to claim a refund of the tax you paid on the bonus payment. Use Form 1040X to claim the refund. Generally, you can file an amended return within 3 years after you filed your original return or 2 years from the time you paid the tax, whichever is later.

Qualified reservist distribution (QRD).(p4)


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: A QRD made on or after June 18, 2008, 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.

Foreign Source Income(p5)


previous topic occurrence Foreign Income next topic occurrence

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, Wage and Tax Statement, 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 2008, this exclusion amount can be as much as $87,600. 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.

Table 2. Excluded Items

The exclusion for certain items applies whether the item is furnished in kind or is a reimbursement or allowance. There is no exclusion for the personal use of a government-provided vehicle.

Living allowances• BAH (Basic Allowance for Housing). You can deduct mortgage interest and real estate taxes on your home even if you pay these expenses with your BAH  Combat zone pay • Compensation for active service while in a combat zone or a qualified hazardous duty area.
Note: Limited amount for officers
 • BAS (Basic Allowance for Subsistence)   
 • Housing and cost-of-living allowances Family • Certain educational expenses for
  abroad whether paid by the U.S. allowances dependents
  Government or by a foreign  • Emergencies
  government  • Evacuation to a place of safety  
 • OHA (Overseas Housing Allowance)   • Separation
Moving • Dislocation  Death • Burial services
allowances• Military base realignment and allowances• Death gratuity payments to
  closure benefit   eligible survivors
  (the exclusion is limited as  • Travel of dependents to burial site
  described beginning on page 3)   
 • Move-in housing  Other payments• Defense counseling
 • Moving household and  • Disability, including payments received
  personal items   for injuries incurred as a direct result
 • Moving trailers or mobile homes    of a terrorist or military action
 • Storage   • Group-term life insurance
 • Temporary lodging and  • Professional education
  temporary lodging expenses   • ROTC educational and subsistence
Travel • Annual round trip for dependent  • Survivor and retirement protection
allowances students    plan premiums
 • Leave between consecutive  • Uniform allowances
  overseas tours   • Uniforms furnished to enlisted personnel
 • Reassignment in a dependent   
  restricted status In-kind military • Dependent-care assistance program
 • Transportation for you or your benefits• Legal assistance
  dependents during ship overhaul  • Medical/dental care
  or inactivation   • Commissary/exchange discounts
 • Per diem   • Space-available travel on
     government aircraft

Community Property(p5)


previous topic occurrence Community Property next topic occurrence

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.

Marital status.(p5)


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.

Nature of the payment.(p5)


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.
previous pagePrevious Page: Publication 225 - Farmer's Tax Guide - How To Get Tax Help
next pageNext Page: Publication 3 - Armed Forces' Tax Guide - Adjustments to Income
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication