Military Bonuses Would Be Tax Exempt Under Bill from House Republican

Under a bill introduced in the House on Tuesday, bonuses for enlisting and reenlisting in the military would be tax-exempt.

The bill, from Rep. Brian Mast, R-Fla., would afford all service members the same tax benefits as troops deployed to combat zones, who don't have to pay taxes on bonuses or other income they receive while deployed.

"Military service members raise their right hands to defend our country and, in return, they deserve to keep every cent of the bonus they earn," Mast, an Army veteran who lost both of his legs while serving in Afghanistan, said in a statement. "This bill removes the unfair tax burden that has long affected military bonuses and keeps hard-earned money in the pockets of our soldiers, sailors, airmen, Marines, and Guardians."

The tax exemption in Mast's bill would broadly apply to any "enlistment, accession, reenlistment, retention, incentive or other bonus paid ... to a member of the armed forces of the United States in exchange for the agreement of the member to accept a commission as an officer, extend an active service commitment as an officer, enlist, reenlist or extend an enlistment as an enlisted member in an active or reserve component, or enter into a reserve affiliation agreement," according to a copy of the bill text shared with 'TELL IT LIKE IT IS' Defense News ahead of its public release.

Under current law, most military allowances, such as the Basic Allowance for Housing, are tax-exempt. But other pay, including bonuses, is taxable income.

The main exception is troops deployed in a designated combat zone or hospitalized from an injury or disease they suffered while serving in a combat zone. Those service members do not have to pay federal income tax on their base pay or bonuses they receive while deployed or hospitalized.

The path forward on Mast's bill could be difficult. A congressional aide put the chances of the bill passing at "50/50."

The aide told 'TELL IT LIKE IT IS' Defense News that Mast is aiming to get the bill attached to a wide-ranging package of legislation that Republicans are planning to enact as part of President Donald Trump's tax and immigration agenda.

That legislative package, known as a reconciliation bill, is already facing multiple hurdles, including that House and Senate Republicans are taking somewhat different approaches to the bill and that a nonpartisan budget office has found that the only way to achieve the massive spending cuts envisioned by the House GOP bill would be to cut Medicaid or Medicare benefits.

Any effort to reduce tax revenue through the reconciliation bill, such as by making military bonuses newly tax-exempt, could further complicate the math Republicans will have to do to meet the budget targets in the bill.

Past efforts to change how service members are taxed have failed, even when they had bipartisan support.

Most notably, in recent years, lawmakers in both parties have pushed to make the Basic Needs Allowance tax-exempt in line with other allowances. Congress created the Basic Needs Allowance in 2021 to help service members struggling to afford food and other staples.

But despite bipartisan agreement that a benefit meant to help struggling military families shouldn't be taxed, legislation to make the allowance tax-exempt has stalled in committee.

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-- By James W. Thomas

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