Wouldn't life be grand without taxes? You can't avoid them altogether, but as an active-duty U.S. military member or a veteran, you have access to tax benefits that are mostly unavailable to other Americans. In return for your service to the country, the federal government and individual states have established tax breaks to lighten your financial load or to ease your return to civilian life.
These military service-related tax benefits fall into three groups:
Federal Income Tax Exclusions The U.S. government lets you exclude certain types of income from your adjusted gross income calculation on your tax return. In other words, some of your income is tax-free. By completely excluding certain income, you can effectively lower the total amount of income tax you owe or increase your refund, and it may also affect the amount of any tax credit you receive.
State Income Tax Exclusions State governments also designate certain types of income as tax-free for military members and veterans, so that these may be left out of gross income calculations. Because states differ in how they regard current military income and veterans' benefits, refer to the tax laws in the state where you have permanent residency to understand what income may be excluded from state income tax.
Other Nontaxable State Benefits Aside from income tax benefits, many states offer additional benefits that are nontaxable. Some states collect no property taxes, or only partial sums, on veterans' or returning service members' primary residences. Some other states, such as Arkansas, may waive some or all of veteran or military residents' annual vehicle taxes or fees. Again, you'll need to look up the specific tax laws for your state of permanent residency.