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Publication 3

Armed Forces' Tax Guide


What's New(p2)

Personal exemption suspended.(p2)
For 2018, you can't claim a personal exemption for yourself, your spouse, or your dependents.
Increased child tax credit and additional child tax credit.(p2)
For 2018, the maximum child tax credit is increased to $2,000 per qualifying child. The maximum amount of additional child tax credit is increased to $1,400 per qualifying child. In addition, the threshold at which the credit begins to phase out is increased to $200,000 ($400,000 if married filing jointly).
Credit for other dependents.(p2)
A new credit of up to $500 is available for each of your dependents who don’t qualify for the child tax credit. In addition, the maximum income threshold at which the credit begins to phase out is increased to $200,000 ($400,000 if married filing jointly).
Social security number (SSN) required for child tax credit.(p2)
Your child must have an SSN valid for employment issued before the due date of your 2018 return (including extensions) to be claimed as a qualifying child for the child tax credit or additional child tax credit. If your child has an ITIN, but not an SSN, issued before the due date of your 2018 return (including extensions), you may be able to claim the new credit for other dependents for that child.
Limitation on the deduction for state and local taxes.(p2)
You can’t deduct more than $10,000 ($5,000 if married filing separately) of your total state and local taxes, including income taxes (or general sales taxes), real estate taxes, and personal property taxes. See the Instructions for Schedule A (Form 1040) for more information.
Limitation on deduction for home mortgage interest.(p2)
You may be able to deduct mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness incurred after December 15, 2017. See the Instructions for Schedule A (Form 1040) for more information.
No deduction for home equity loan interest.(p2)
No matter when the indebtedness was incurred, you can no longer deduct interest from a loan secured by your home to the extent the loan proceeds weren't used to buy, build, or improve your home. See the Instructions for Schedule A (Form 1040) for more information.
No miscellaneous itemized deductions allowed.(p2)
You can no longer claim any miscellaneous itemized deductions, including the deduction for unreimbursed job expenses. Miscellaneous itemized deductions are those deductions that would have been subject to the 2%-of-adjusted-gross-income limit.
Qualified business income deduction.(p2)
Beginning in 2018, you may be able to deduct up to 20% of your qualified business income from your qualified trade or business, plus 20% of your qualified REIT dividends and qualified PTP income. The deduction can be taken in addition to your standard deduction or itemized deductions. For more information, see the instructions for line 9 of Form 1040 and Pub. 535.
Moving expense deduction suspended, except for certain Armed Forces members.(p2)
Beginning in 2018, the moving expense deduction is suspended except if you are a member of the Armed Forces on active duty and, due to a military order, you move because of a permanent change of station.
Domestic Production Activities Deduction (DPAD).(p2)
The DPAD has been repealed for tax years beginning after 2017 with limited exceptions. See the Instructions for Form 8903 for more information.
Due date of return.(p2)
File Form 1040 by April 15, 2019. If you live in Maine or Massachusetts, you have until April 17, 2019, because of the Patriots' Day holiday in those states and the Emancipation Day holiday in the District of Columbia.
Standard mileage rates for 2018.(p2)
The rate for the cost of operating your car for business use is 54.5 cents per mile. The rate for operating your car to get medical care or to move is 18 cents per mile. The rate for charitable use of your vehicle is still 14 cents per mile.
Residence election of civilian spouse. (p2)
Beginning in 2018, if you are the civilian spouse of an active duty U.S. military servicemember, you may elect to have the same tax residence as the servicemember.


Future developments.(p2)
For the latest information about developments related to Pub. 3, such as legislation enacted after it was published, go to
Change of address.(p2)
If you change your mailing address, be sure to notify the 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.) Use Form 8822-B, Change of Address or Responsible Party—Business, if you are changing a business address.
Third party designee.(p3)
You can check the "Yes" box in the Third Party Designee area of your return to authorize the IRS to discuss your return with your preparer, a friend, a 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 return instructions for details.
Photographs of missing children.(p3)
The IRS is a proud partner with the National Center for Missing & Exploited Children® (NCMEC). 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.
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. The Public Health Service and the National Oceanic and Atmospheric Administration also can receive many of the same tax benefits. The U.S. Armed Forces doesn't 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.

What isn't covered in this publication.(p3)

This publication doesn't cover military retirement pay or veterans' benefits (except those discussed under Disability Severance Payments to Veterans, later) or give the basic tax rules that apply to all taxpayers. For information on military retirement pay or veterans' benefits, see Pub. 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.

Comments and suggestions.(p3)

We welcome your comments about this publication and your suggestions for future editions.
You can send us comments from
Or you can write to:

Internal Revenue Service
Tax Forms and Publications
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.
Although we can’t respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.
Ordering forms and publications.(p3)
Visit to download forms and publications. Otherwise, you can go to to order current and prior-year forms and instructions. Your order should arrive within 10 business days.
Tax questions.(p3)
If you have a tax question not answered by this publication, check and How To Get Tax Help at the end of this publication.


Useful items

You may want to see:

 54 Tax Guide for U.S. Citizens and Resident Aliens Abroad
 463 Travel, Gift, and Car Expenses
 501 Dependents, 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
 559 Survivors, Executors, and Administrators
 590-A Contributions to Individual Retirement Arrangements (IRAs)
 590-B Distributions from 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
 2555: Foreign Earned Income
 2555-EZ: Foreign Earned Income Exclusion
 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
 8822-B: Change of Address or Responsible Party—Business
 9465: Installment Agreement Request
See How To Get Tax Help at the end of this publication for information about getting IRS publications and forms.

Gross Income(p4)

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.

Items Included in Gross Income(p4)

You must report the items listed in Table 1 as gross income on your tax return unless the pay is for service in a combat zone. For pay for service in a combat zone, refer to Table 2. The items in Table 1 are taxable. The list in Table 1 isn't exclusive. Also see Income Items of Special Interest, later.

Table 1. Items Included in Gross Income

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

Basic pay• Active duty
 • Attendance at a designated service school
 • Back wages
 • Cadet/midshipman pay
 • Drills
 • Reserve training
 • Training duty
Special pay• Aviation career incentives
 • Career sea
 • Diving duty
 • Foreign duty (outside the 48 contiguous states and the District of Columbia)
 • Foreign language proficiency 
 • Hardship duty
 • Hostile fire or imminent danger
 • Medical and dental officers
 • Nuclear-qualified officers
 • Optometry
 • Other Health Professional Special Pays (for example, nurse, physician assistant, social work, etc.)
  • Pharmacy
 • Special compensation for assistance with activities of daily living (SCAADL)
 • Special duty assignment pay
 • Veterinarian
 • Voluntary Separation Incentive
Bonus pay• Career status
 • Continuation pay
  • Enlistment
 • Officer
 • Overseas extension
 • Reenlistment
Incentive pay• Submarine
 • Flight
 • Hazardous duty
 • High Altitude/Low Opening (HALO)
Other pay• Accrued leave
 • High deployment per diem
 • Personal money allowances paid to high-ranking officers
 • Student loan repayment from programs such as the Department of Defense Educational Loan Repayment Program when year's service (requirement) isn't attributable to a combat zone
In-kind military benefits• Personal use of a government-provided vehicle

Items Excluded From Gross Income(p4)

Items in Table 2 aren't includible in your gross income though you may have to report them on your income tax return. The list in Table 2 isn't exclusive. See your tax return instructions for more information on specific items. Also see Income Items of Special Interest, later.

Combat pay.(p4)

You also may be able to exclude pay for service in a combat zone even though that pay would otherwise be taxable. For information on the exclusion of pay for service in a combat zone and other tax benefits for combat zone participants, see Combat Pay Exclusion and Are There Filing, Tax Payment, and Other Extensions Specifically for Those in a Combat Zone or a Contingency Operation, later.
DepositRetroactive determination of nontaxable disability severance payments.
The Combat-Injured Veterans Tax Fairness Act of 2016 gives certain veterans who received disability severance payments after January 17, 1991, additional time to file claims for a credit or refund relating to overpayments attributable to these payments. Veterans affected by this legislation should receive a notice in July 2018 from the Department of Defense (DoD). See Disability Severance Payments to Veterans, later.

Table 2. Items Excluded From Gross Income

The exclusion for certain items applies whether the item is furnished in kind or is a reimbursement or allowance.

Combat pay• Compensation for active service while in a combat zone (See Combat Pay Exclusion, later)
Note. The exclusion for certain officers is limited. See Commissioned officers (other than commissioned warrant officers), later.
Other pay• Certain amounts received under the Armed Forces Health Professions Scholarship and Financial Assistance Program payments
 • Certain disability retirement pay, including payments received for injuries incurred as a direct result of a terrorist or military action
 • Disability severance payments (See Disability Severance Payments to Veterans, later)
 • Group-term life insurance
 • Professional education
 • ROTC educational and subsistence allowances
 • State bonus pay for service in a combat zone (See State bonus payments, later)
 • Survivor and retirement protection plan premiums
 • Uniform allowances
Death allowances• Burial services
 • Death gratuity payments to eligible survivors
 • Travel of dependents to burial site
Family allowances• Certain educational expenses for dependents
 • Emergencies
 • Evacuation to a place of safety  
 • Separation
Living allowances• BAH (Basic Allowance for Housing) (See also Can I deduct expenses paid with my excluded basic allowance for housing (BAH), later)
 • BAS (Basic Allowance for Subsistence)
 • Housing and cost-of-living allowances abroad paid by the U.S. Government or by a foreign government
 • OHA (Overseas Housing Allowance)
Moving allowances• Dislocation
 • Military base realignment and closure benefit (See Military base realignment and closure benefits, later)
 • Move-in housing
 • Moving household and personal items
 • Moving trailers or mobile homes
 • Storage
 • Temporary lodging and temporary lodging expenses
Travel allowances• Annual round trip for dependent students
 • Leave between consecutive overseas tours
 • Reassignment in a dependent restricted status
 • Transportation for you or your dependents during ship overhaul or inactivation
 • Per diem 
In-kind military benefits• Dependent-care assistance program
 • Defense counsel services
 • Legal assistance
 • Medical/dental care
 • Commissary/exchange discounts
 • Space-available travel on government aircraft
 • Uniforms furnished to enlisted personnel

Income Items of Special Interest(p4)


Death gratuity to a survivor.(p4)

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

Can I deduct expenses paid with my excluded basic allowance for housing (BAH)?(p4)

As noted in Table 2, BAH is excluded from income. This doesn't prevent you from deducting certain expenses paid for with your BAH. You still may be able to deduct mortgage interest and real estate taxes on your home if you pay these expenses with your BAH. See the Instructions for Schedule A of your tax return.

Differential wage payments.(p4)

Differential wage payments are taxable. They aren't treated as combat pay even if the individual was in a combat zone.
What are differential wage payments?(p4)
Differential wage payments are payments made by an employer (other than the Armed Forces) to an individual. They are paid for a period during which the individual performed services in the uniformed services while on active duty for a period of more than 30 days. These payments represent all or a portion of the wages the individual would have received from the employer if the individual had been performing services for the employer during that period.

Military base realignment and closure benefits.(p4)

Military base realignment and closure benefits paid under the Homeowners Assistance Program (HAP) generally are excluded from income. However, for any property, the sum of all your payments can't be more than the maximum amount described in subsection (c) of 42 U.S.C. 3374 as in effect on November 6, 2009. You must include in income the excess over this maximum amount. For more information about the HAP, see

Qualified reservist distribution (QRD).(p4)

The portion of your QRD reported by your employer as wages on Form W-2, Wage and Tax Statement, is included in your gross income and is taxable. The amount reported should be the QRD reduced by the after-tax contributions to your health flexible spending arrangement. This amount also is subject to employment taxes.
What is a 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:

Uniformed Services Traditional Thrift Savings Plan (TSP) distributions.(p5)

If you participate in the Uniformed Services Traditional TSP and receive a distribution from your account, the distribution is generally included in your taxable income unless your contributions included tax-exempt combat pay.
If your contributions included tax-exempt combat 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 nontaxable portions of the distribution. For more information on TSP distributions, see TSP-536, Important Tax Information About Payments From Your TSP Account.

Roth Thrift Savings Plan (TSP) balance.(p5)

Roth TSP contributions are included in your income. They are after-tax contributions and are subject to the same contribution limits as the traditional TSP. Qualified distributions from a Roth TSP aren't included in your income. For more details, see Thrift Savings Plan in Part II of Pub. 721, Tax Guide to U.S. Civil Service Retirement Benefits.
What is a Roth TSP balance? (p6)
The TSP known as the Roth TSP lets you invest in a designated Roth account through a TSP. Your Roth TSP balance is the portion of your TSP you have designated as Roth. To learn more about Roth TSP balances, see TSP-536.

State bonus payments.(p6)

A state bonus payment will be treated as combat pay and may not be taxable if it is made because of your current or former service in a combat zone. See Combat Zone Defined, later, for a list of designated combat zones.
What are state bonus payments?(p7)
A state bonus payment is a bonus payment made to you or to your dependent(s) by a state (or a political subdivision of a state).

Disability Severance Payments to Veterans(p7)

Veterans discharged from military service due to medical disability may receive a one-time lump sum severance payment. If you received a disability severance payment that was taxed to you, and either the amounts received were by reason of a combat-related injury or the Department of Veterans Affairs (VA) later determined that you were entitled to receive disability compensation, your severance payment isn’t taxable and you can file a claim for credit or refund using Form 1040X for the tax year in which the disability severance payment was received and included in income on your tax return.
For more information about amending prior year returns to take advantage of this change, see the Instructions for Form 1040X. For the latest information relating to Form 1040X, go to

Retroactive determination of nontaxable disability severance payments. (p7)

The Combat-Injured Veterans Tax Fairness Act of 2016 gives certain veterans who received disability severance payments after January 17, 1991, additional time to file claims for credit or refund to recover tax overpayments attributable to their disability severance payments. Veterans affected by this legislation should have received a notice in July 2018 from the Department of Defense (DoD) reporting the amount of disability severance payments.

How do I file a claim for a refund of an overpayment attributable to my disability severance pay?(p7)

The notice from the DoD includes an explanation of how to file a claim, including a simplified method for making the claim. The IRS has worked closely with the DoD to produce these notices, explaining how veterans should claim the related tax refunds.
You can submit a claim based on the actual amount of your disability severance payment by completing Form 1040X. However, you can choose instead to claim a standard refund amount based on the calendar year in which you received the severance payment. Write "Disability Severance Payment" on line 15 of Form 1040X and enter on lines 15 and 22 the standard refund amount listed below that applies. Claiming the standard refund amount is the easiest way for you to claim a refund, because you don’t need to access the original tax return from the year of your lump-sum disability severance payment.
Enter "Veteran Disability Severance" or "St. Clair Claim" across the top of Form 1040X, page 1, and attach a copy of the notice from the DoD about the disability severance payment. If you didn’t receive the DoD notice, you must include documentation showing the exact amount of and reason for your disability severance payment and a copy of either the VA determination letter confirming your disability or a determination that your injury or sickness was either incurred as a direct result of armed conflict, while in extra-hazardous service, or in simulated war exercises, or was caused by an instrumentality of war. Documentation showing the exact amount of and reason for your disability severance payment may include a letter from the Defense Finance and Accounting Services (DFAS) or your Form DD214 explaining the severance payment at the time of the payment. If you don’t have the required documentation showing the exact amount of and reason for your disability severance payment, visit to learn how to obtain it.
In addition to the documents listed above, Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, may need to accompany Form 1040X. See Step 4: Provide Form 1310, if required under How Is Tax Forgiveness Claimed.
When must I file my claim?(p7)
You must file your claim by the later of 1 year after the date you received the notice from the DoD or the normal deadline for filing a claim for refund or credit. This alternative one-year time frame is especially important because the normal deadline is the later of 3 years after filing the original return or 2 years after paying the tax and claims may date back as far as 1991.

Where to file.(p7)

Mail the completed Form 1040X and your documents to the following address, regardless of where you live:

Internal Revenue Service
333 W. Pershing Street, Stop 6503, P5
Kansas City, MO 64108


Foreign Source Income(p7)


What Is Foreign Source Income?(p7)

For U.S. citizens, foreign source income is income from sources outside the United States. This section only discusses the tax consequences for foreign source income of U.S. citizens.

Is My Foreign Source Income Taxable?(p7)

You must report all of your foreign source income on your tax return, except for those amounts that U.S. law specifically allows you to exclude. 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).
Some foreign income may be excluded, but these exclusions aren't available for wages and salaries of military and civilian employees of the U.S. Government. See more on these exclusions in Foreign earned income exclusion and American Samoa income exclusion below.

Foreign earned income exclusion.(p8)

Certain taxpayers can exclude income earned in foreign countries. For 2018, this exclusion amount can be as much as $103,900. However, the foreign earned income exclusion doesn’t 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. You won’t be treated as having a tax home in a foreign country for any period for which your abode is within the United States, unless you are serving in an area designated by the President of the United States by Executive order as a combat zone in support of the Armed Forces of the United States. For more information on the exclusion, including the definition of "abode," see Pub. 54.

American Samoa income exclusion.(p8)

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

Community Property(p8)

The pay you earn as a member of the Armed Forces may be subject to community property laws depending on your marital status, the nature of the payment, and your domicile. These laws may affect how much of your income is included in your gross income for tax purposes. Community property states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Marital Status(p8)

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

Nature of the Payment(p8)

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 Pub. 555, Community Property.


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 isn't always where you presently live.

Domicile or tax residence of civilian spouse. (p8)

If you are the civilian spouse of an active duty U.S. military servicemember and your domicile or residence is the same as the servicemember's, you may be able to keep your prior domicile or residence for tax purposes when you accompany your spouse who relocated to a new duty station. For more information about this option, see Pub. 570. You may also elect to have the same domicile or residence as the servicemember.

Nevada, Washington, and California Domestic Partners(p8)

A registered domestic partner in Nevada, Washington, or California generally must report half of his or her income plus half of the income of his or her domestic partner. See Form 8958 and Pub. 555.

Form W-2(p8)


What Information Can I Find on My Form W-2?(p8)

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.

Form W-2 Reference Guide for Box 12 Codes

AUncollected social security or RRTA tax on tipsBUncollected Medicare tax on tips (but not Additional Medicare Tax)CTaxable cost of group-term life insurance over $50,000
DElective deferrals to a section 401(k) cash or deferred arrangement plan (including a SIMPLE 401(k) arrangement)EElective deferrals under a section 403(b) salary reduction agreementFElective deferrals under a section 408(k)(6) salary reduction SEP
GElective deferrals and employer contributions (including nonelective deferrals) to a section 457(b) deferred compensation plan HElective deferrals to a section 501(c)(18)(D) tax-exempt organization planJNontaxable sick pay
K20% excise tax on excess golden parachute paymentsLSubstantiated employee business expense reimbursementsMUncollected social security or RRTA tax on taxable cost of group-term life insurance over $50,000 (former employees only)
NUncollected Medicare tax on taxable cost of group-term life insurance over $50,000 (but not Additional Medicare Tax) (former employees only) PExcludable moving expense reimbursements paid directly to a member of the U.S. Armed ForcesQNontaxable combat pay
REmployer contributions to an Archer MSASEmployee salary reduction contributions under a section 408(p) SIMPLE planTAdoption benefits
VIncome from exercise of nonstatutory stock option(s)WEmployer contributions (including employee contributions through a cafeteria plan) to an employee's health savings account (HSA) YDeferrals under a section 409A nonqualified deferred compensation plan
ZIncome under a nonqualified deferred compensation plan that fails to satisfy section 409AAADesignated Roth contributions under a section 401(k) planBBDesignated Roth contributions under a section 403(b) plan
DDCost of employer-sponsored health coverageEEDesignated Roth contributions under a governmental section 457(b) planFFPermitted benefits under a qualified small employer health reimbursement arrangement
GGIncome from qualified equity grants under section 83(i)HHAggregate deferrals under section 83(i) elections as of the close of the calendar year  

Note. For more information on these codes, see the General Instructions for Forms W-2 and W-3.

What Do the Codes in Box 12 of Form W-2 Mean?(p9)

Box 12 shows amounts not listed in other places on the form. The amounts shown in box 12 are generally preceded by a code. A list of the codes used in box 12 is shown above.