Military families face unique challenges in managing income tax, retirement income, and property tax obligations. Nevada offers essential advantages, making the state especially appealing for active duty service members, retired service members, and honorably discharged veterans. With no state income tax, military retirees and surviving spouses can protect their military retirement pay, survivor pay, and other benefits while meeting federal income tax obligations. The Military Tax Guide Nevada 2025 highlights the most critical state and federal rules affecting service members and their families.

Understanding which forms of pay are taxable and which are tax-free can reduce confusion and prevent costly errors. Active duty pay, basic pay, and bonuses often fall under federal income tax requirements, while allowances and certain benefits remain exempt. Families must carefully review federal and local laws to avoid overreporting gross income or missing available property tax relief programs. Families receiving retired military pay, survivor benefit plan payments, and Social Security income must track tax treatment carefully to avoid errors.

This guide explains property tax exemptions for qualified disabled veterans, outlines partial property tax exemptions, and clarifies rules for assessed value and property tax credit eligibility. It also covers how combat zones, military service-connected disability ratings, and Department of Veterans Affairs benefits interact with federal and state obligations.

Income Tax Rules for Military Members

Military members face unique income tax considerations that differ from civilian taxpayers. Nevada’s lack of state income tax provides significant relief, but service members must still comply with federal income tax rules. Understanding how gross income is classified ensures accurate reporting for active duty service members, retired service members, and surviving spouses. Precise knowledge of taxable versus tax-free pay prevents errors and supports financial stability throughout military service.

The Internal Revenue Service outlines special provisions for armed forces personnel, including how basic pay, bonuses, and allowances are treated. Federal income tax applies to specific categories of compensation, while other forms of military pay remain exempt. Detailed guidance is available on the IRS Military Tax Information page, which explains how service members should manage taxable income and deductions under federal law.

Examples of taxable income for military members include:

• Basic pay: The foundation of compensation for active duty service.
  
  
• Bonuses and incentive pay: Special pay for hazardous duty, reenlistment, or skills.
  
  
• Drill pay for reservists: Included in gross income and subject to federal income tax.
  
  
• Leave settlement pay: Unused leave converted to pay when separating from service.

Examples of tax-free or excluded income include:

• Combat pay: Pay is excluded when earned in recognized combat zones.
  
  
• Basic Allowance for Housing (BAH): Tax-exempt support for housing costs.
  
  
• Basic Allowance for Subsistence (BAS): Non-taxable allowance for meals.
  
  
• Service-connected disability payments: Exempt under federal law when verified by the Department of Veterans Affairs.
  
  
• Moving expense reimbursements: Eligible costs related to Permanent Change of Station (PCS) orders.

Accurate categorization of military pay impacts adjusted gross income, tax year filings, and eligibility for property tax relief. Families must also consider how survivors' pay and social security income affect the total taxable value. By understanding these rules, service members can plan effectively, safeguard benefits, and avoid reporting errors on taxable income.

Correctly reporting taxable income while excluding eligible tax-free allowances ensures compliance and prevents overpayment. Nevada’s favorable laws reduce state burdens, but federal responsibilities remain central to financial planning. Service members and their families can safeguard their long-term economic health by aligning income reporting with military regulations and federal law.

Military Retirement Income and Pay

Understanding Military Retirement Income

Military retirement income provides long-term financial stability for retired service members and their families. Nevada offers substantial advantages because the state does not tax military retirement pay, survivor pay, or retirement income from military service. While federal income tax still applies, excluding state-level taxation ensures that military retirees keep more of their earned benefits. Families planning for the future must carefully track how gross income, adjusted gross income, and other taxable sources interact with military retirement pay.

Survivor Benefits and Family Protections

The survivor benefit plan provides continuing income to surviving spouses and dependent children when a retired service member dies. Survivor pay is considered taxable income under federal law, but Nevada’s lack of state income tax reduces overall liability for legal residents. Understanding the role of survivor pay in calculating adjusted gross income helps families prepare for annual tax obligations. For surviving spouses, these benefits offer important stability while navigating property tax relief programs and federal income tax responsibilities.

Planning for Military Retirees

Military retirees must balance retirement pay, Social Security income, and Department of Veterans Affairs disability payments when filing federal returns. VA benefits and service-connected disability compensation remain tax-free, which reduces the taxable amount reported on each year’s return. Retired military pay and retirement income from Thrift Savings Plan withdrawals are subject to federal income tax, requiring careful planning to avoid higher taxable brackets. By integrating property tax credit opportunities, exemptions for qualified disabled veterans, and federal tax compliance, military retirees can strengthen their long-term financial position.

Military retirement income is a cornerstone of financial security for veterans, surviving spouses, and dependents. Nevada’s state tax advantages and federal rules create a landscape where careful planning matters. Families who understand how survivor pay, retirement pay, and tax-free VA benefits interact with federal income tax can reduce risks and maintain long-term stability. Comprehensive knowledge of these rules supports more intelligent decision-making and ensures that military retirees safeguard their earned benefits for years to come.

Disabled Veterans and Property Tax Relief

Nevada provides essential property tax relief programs for disabled veterans and their families. These exemptions reduce the assessed value used to calculate property taxes. Eligible veterans include those with a qualifying service-connected disability rating, honorably discharged veterans, and surviving spouses of wartime veterans. The Department of Veterans Affairs plays a key role in verifying eligibility, ensuring that military service and disability status are adequately documented.

Qualified Disabled Veterans: Veterans with a verified service-connected disability may claim property tax relief on their primary residence. The exemption amount varies based on the disability percentage the Department of Veterans Affairs assigns. This benefit reduces assessed value, lowering the overall tax burden for qualified veterans.

Totally Disabled Veterans: Veterans rated as disabled receive the highest exemption levels. This substantially reduces real property taxes, especially when the primary residence has a higher assessed value. The relief applies regardless of income level, ensuring permanently disabled veterans receive maximum protection.

Partial Property Tax Exemptions: Veterans with a service-connected disability rating between 10% and 90% may qualify for partial property tax exemptions. The percentage of exemption reflects the level of disability, providing tax relief proportional to the veteran’s service-connected condition. This system ensures fair treatment across varying degrees of disability.

Property Tax Credit and Deferral Options: Nevada counties may also extend property tax credit or deferral programs to eligible veterans. These measures allow families to manage cash flow during the tax year while securing property ownership. Combining exemptions with credits or deferrals can provide significant relief to households balancing retirement income, military retirement pay, and social security benefits.

Nevada’s property tax relief structure significantly benefits disabled veterans. The state provides multiple forms of support by lowering taxable value, adjusting assessed value, and offering credits and deferrals. These programs reflect respect for military service and recognize qualifying veterans' and their families' sacrifices. With accurate records from veterans services and local assessors, eligible veterans can secure lasting financial relief through property tax exemptions.

Property Tax Credits, Deferrals, and Exemptions

Nevada provides multiple forms of property tax relief that support military retirees, qualified disabled veterans, and surviving spouses. These measures include property tax credits, exemptions, and deferrals designed to reduce taxable property value and ease household financial strain. Each option applies differently depending on assessed value, primary residence requirements, and the status of qualifying veterans.

The following table outlines the distinctions between credits, deferrals, and exemptions:

Property Tax Programs for Veterans

1. Property Tax Credit

• Eligibility: Eligible veterans, surviving spouses, and legal residents.
• Benefit: Reduces the annual property tax bill directly.
• Key Details: Based on the taxable property value for the tax year.

2. Property Tax Exemption

• Eligibility: Honorably discharged veterans, permanently disabled veterans, and wartime veterans.
• Benefit: Lowers the assessed value of the primary residence or vehicle registration.
• Key Details: The amount varies by service-connected disability rating.

3. Property Tax Deferral

• Eligibility: Retired military pay recipients, disabled retirees, and qualifying veterans facing financial hardship.
• Benefit: Delays payment of real property taxes.
• Key Details: Taxes accrue but remain postponed until the transfer or sale of the property.

Property tax exemptions work by reducing assessed value before tax rates are applied. This structure benefits eligible veterans and surviving spouses by lowering total liability while preserving ownership of the primary residence. Exemptions remain one of Nevada's most widely used forms of property tax relief.

Credits function differently, applying as a direct reduction in tax owed after the taxable property value is calculated. These credits offer an immediate financial benefit during the tax year. Deferrals provide another alternative, giving retired service members and surviving spouses flexibility by postponing payments until property ownership changes.

Military retirees and veterans must weigh these options carefully when planning for retirement income, military retirement pay, and long-term housing stability. Proper use of exemptions, credits, or deferrals allows qualifying veterans to secure lasting property tax relief. Nevada’s system acknowledges the sacrifices of armed forces members while ensuring families maintain financial stability through local laws and statewide support programs.

Combat Pay, Active Duty Service, and Federal Law

Combat pay is critical to military compensation for active duty service members assigned to combat zones. Federal law recognizes the challenges of serving in these areas and provides tax-free treatment for eligible combat pay. Nevada’s tax environment strengthens these protections by excluding combat pay from state and federal calculations that apply to gross income. Accurate application of these rules allows military service families to avoid overpayment and preserve more of their earnings.

Combat pay exclusions apply differently depending on rank and status. Enlisted personnel and warrant officers may exclude all combat pay from federal income tax, while commissioned officers have limits based on the highest enlisted pay rate plus imminent danger pay. The rules described in IRS Publication 3, Armed Forces’ Tax Guide, outline how to apply proper exclusions and maintain compliance during the tax year. 

Key points for combat pay under federal law include:

• Eligibility: Applies to service in designated combat zones as defined by the Department of Defense and the Internal Revenue Service.
  
  
• Scope of Exclusion: Enlisted members and warrant officers exclude all pay earned in combat zones.
  
  
• Officer Limits: Commissioned officers may exclude pay up to the maximum enlisted pay plus imminent danger pay.
  
  
• Hospitalization Coverage: Combat pay remains tax-free during hospitalization from wounds, disease, or injuries incurred in combat zones.
  
  
• Impact on Benefits: Excluded combat pay may still count toward social security and retirement income calculations.
  
  
• Filing Considerations: Proper W-2 reporting ensures exclusions are reflected in adjusted gross income.

Excluding combat pay provides significant relief for service members and their families. It ensures that active duty service in combat zones does not increase federal income tax liability or taxable value on annual returns. By applying federal law correctly, families safeguard tax-free pay, maintain compliance, and reduce errors during filing.

Combat pay rules represent a vital balance between federal protections and the realities of military service. With clear exclusions, accurate documentation, and informed planning, service members can confirm that combat pay supports financial stability without creating unintended federal tax burdens. These measures honor the sacrifices of armed forces personnel and protect their long-term economic health.

Moving Expense Deductions for PCS Orders

Military families often relocate under Permanent Change of Station (PCS) orders, creating significant financial challenges. Active duty service members can deduct moving expenses directly related to PCS orders without meeting the distance or time requirements that apply to civilians. These deductions reduce federal income tax liability by lowering gross income during the tax year, which provides essential relief during transitions.

Step 1: Receive PCS Orders

The moving expense deduction applies only when the relocation results from official military orders. Families must keep copies of PCS documents because these records verify eligibility for federal income tax purposes. Personal moves that are not supported by military orders do not qualify.

Step 2: Track Eligible Expenses

Service members should carefully record all qualified expenses to ensure accurate filing.

• Transportation of household goods and personal effects is deductible when relocation occurs under official PCS orders.
  
  
• Storage and insurance expenses for household goods in transit are also eligible.
  
  
• Travel costs for the service member, spouse, and dependent children are included when directly tied to the PCS move.
  
  
• Lodging expenses incurred during travel between duty stations may be deducted if not reimbursed. 

Step 3: Confirm Deduction Eligibility

The PCS deduction applies to active-duty service members at the time of relocation. Retired service members or veterans cannot claim the deduction unless the expenses occur during active-duty service and under official orders.

Step 4: Complete Required Forms

The IRS requires Form 3903 to report PCS moving expense deductions. Filing this form ensures that the deductions reduce the taxable value before adjusted gross income is calculated. Since reimbursed costs cannot be claimed, only unreimbursed expenses should be included.

Step 5: Maintain Documentation

Service members must keep detailed receipts and supporting records for at least three years after the tax year of the move. Transportation, lodging, and storage receipts provide proof of eligibility and support the accurate calculation of federal income tax benefits.

PCS moving expense deductions reduce financial stress and allow military families to transition between duty stations without added tax burdens. Service members can protect their household finances while meeting federal tax obligations by keeping proper documentation, filing accurately, and understanding eligible expenses.

Military Spouses and Residency Protections

Definition of the Military Spouses Residency Relief Act

The Military Spouses Residency Relief Act (MSRRA) provides legal protections for military spouses who move frequently due to active duty service orders. This law allows spouses to maintain the same state of legal residency as the service member, regardless of where they are stationed. The provision prevents nonresident service members and their spouses from being taxed in multiple states. It also safeguards the rights of surviving spouses and dependent children to preserve residency status for tax purposes.

How Federal Law Protects Spouses

Federal law under the MSRRA ensures that spouses are not forced to change residency with each relocation. Military families who are legal residents of Nevada can remain exempt from state income taxes even when stationed in states that impose them. Residency protections include voting rights, property tax relief, and state tax filing. This law reduces financial burdens for many families while supporting long-term planning tied to military retirement income, survivor pay, and household stability.

Practical Applications for Nevada Families

Military spouses outside Nevada continue to benefit from Nevada’s favorable tax structure as long as residency is maintained. Local laws require proper documentation to prove eligibility, such as Nevada driver’s licenses, voter registration, and residency affidavits. For qualifying veterans and spouses, these protections work alongside property tax credit programs and exemptions for wartime veterans. Maintaining Nevada residency ensures that retirement pay, adjusted gross income, and other taxable income are shielded from additional state-level obligations.

Residency protections give military families the stability they need when frequent relocations disrupt daily life. By ensuring that legal residents of Nevada are not burdened with extra state taxes, the MSRRA creates consistency in financial planning. These rules preserve benefits and simplify obligations for spouses and surviving spouses during active duty service and retirement years. The law reinforces fairness for armed forces families, ensuring they receive the full value of Nevada’s tax advantages.

Overseas Contractors and Federal Exclusions

Military contractors and federal employees working overseas face unique tax challenges that differ from those of active duty service members. Federal law provides exclusions that reduce gross income for those serving in combat zones or working abroad under government contracts. The Internal Revenue Service clarified these rules in its Combat Zone Contractor Exclusion Update, which outlines foreign earned income exclusion eligibility.

Eligibility for the Foreign Earned Income Exclusion

• U.S. citizens who work overseas as contractors may qualify for the foreign earned income exclusion if they meet residency or presence tests.
  
  
• Contractors providing direct support to armed forces in designated combat zones are included explicitly under current federal law.
  
  
• Nonresident service members who later work as contractors abroad may also qualify if they meet federal requirements for time spent overseas.

Income Covered by the Exclusion

• The exclusion can reduce taxable gross income by removing foreign earnings from federal income tax calculations.
  
  
• Retirement income, such as military retired pay or survivor pay, is not excluded under this rule, as those amounts remain taxable.
  
  
• Social security benefits remain subject to federal income tax despite overseas work.

Limitations and Conditions

• The exclusion applies only to earned income, not to allowances or reimbursements received while working overseas.
  
  
• Contractors must still file annual tax returns with the Internal Revenue Service, even when income qualifies for the exclusion.
  
  
• The exclusion has a maximum annual limit that adjusts each tax year, requiring contractors to track earnings carefully.

Importance for Military Families

• Reducing gross income through exclusions helps families lower their adjusted gross income, affecting tax credit eligibility.
  
  
• Families relying on retirement pay, survivor benefit plan income, or social security must plan carefully since those sources remain taxable.
  
  
• Contractors must balance federal exclusions with local laws abroad to ensure compliance and avoid tax issues in host countries.

Overseas contractors benefit from well-defined exclusions that acknowledge their role in supporting military service. By reducing taxable income while ensuring compliance with federal law, these measures protect household finances and honor the commitment of those working alongside the armed forces in challenging environments. Proper planning ensures that qualifying veterans and contractors maintain stability while meeting professional duties and tax responsibilities.

Common Tax Mistakes Military Families Make

Military families face unique tax situations shaped by relocations, combat zones, and varied sources of income. Errors in reporting taxable income or claiming exemptions can increase federal income tax liability. Recognizing the most common errors helps families maintain compliance and safeguard their financial stability.

1. Incorrect Residency Claims

Some service members mistakenly adopt their duty station state as their residence. This error can increase taxable value for Nevada residents and cause loss of exemptions and property tax credit eligibility. Maintaining Nevada residency safeguards these benefits.

2. Failure to Exclude Combat Pay

Combat pay earned in combat zones is tax-free, but families sometimes fail to exclude it. This mistake inflates and adjusts gross income, increasing federal income tax obligations.

3. Overlooking PCS Deductions

Unreimbursed expenses from Permanent Change of Station orders often go unclaimed. Travel, storage, and lodging deductions reduce federal tax liability when reported accurately.

4. Misreporting Retirement Pay and Survivor Benefits

Retired military and survivor pay are taxable under federal law, while VA disability compensation remains tax-free. Confusing these categories creates filing errors.

5. Ignoring Disability Exemptions

Qualified disabled veterans with a service-connected disability rating sometimes fail to apply for property tax relief. For permanently disabled veterans, exemptions can significantly reduce the assessed value of a primary residence.

Avoiding these mistakes ensures compliance with federal law and protects household finances. Careful planning allows military retirees, active duty service members, and surviving spouses to preserve long-term tax relief.

Frequently Asked Questions

Do Nevada service members pay state income tax on military pay?

Nevada does not impose state income tax, so active duty service members, retired military pay recipients, and surviving spouses are not taxed on military income. Families must still meet federal income tax requirements and report all taxable gross income. Nevada’s tax laws and federal protections provide relief for legal residents, making the state favorable for military retirees and service members.

How does combat pay affect federal income tax?

Combat pay earned in designated combat zones is excluded from federal income tax for enlisted personnel and warrant officers. Commissioned officers may exclude an amount up to the highest enlisted pay plus imminent danger pay. Excluding combat pay lowers gross income and adjusted gross income, which reduces total federal income tax liability. This rule ensures active duty service members in combat zones receive fair treatment and financial protection during military service.

What property tax relief is available for disabled veterans in Nevada?

Qualified disabled veterans with a verified service-connected disability rating may apply for property tax relief programs. These include full or partial property tax exemptions, depending on disability percentage, which lower the assessed value of a primary residence. Some counties also offer property tax credit or property tax deferral options. Permanently disabled veterans and totally disabled veterans often qualify for the most significant exemptions, reducing long-term financial strain on households.

How is military retirement pay treated for tax purposes in Nevada?

Nevada does not tax military retirement pay, survivor pay, or survivor benefit plan income. However, federal income tax applies to military retirement income, Thrift Savings Plan withdrawals, and other taxable retirement income sources. To ensure compliance, veterans must carefully review adjusted gross income and taxable value each tax year. Combining federal filing obligations with Nevada’s state exemptions helps retired service members safeguard earned benefits and plan confidently.

Can military spouses keep Nevada residency when stationed elsewhere?

Yes, under the Military Spouses Residency Relief Act, spouses may maintain Nevada residency while stationed in another state with their service member. This protection allows legal residents to avoid state income tax obligations in states that impose them. Military spouses who maintain Nevada residency also remain eligible for property tax credit programs and other state-level benefits, supporting long-term stability for families during relocations and deployments tied to active duty service.

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