Military members, veterans, and their families face unique tax circumstances that differ from those of civilian taxpayers. The military tax guide New Hampshire 2024 clarifies how federal income tax obligations interact with New Hampshire’s state tax rules. Since the state does not impose a broad income tax on wages or military compensation, service members encounter tax considerations that differ from those in other states.

Understanding how to report military income, retirement income, and active duty pay is critical for accurate filing. For example, allowances such as housing and subsistence are tax-exempt at the federal level, while basic pay remains taxable. Veterans Affairs benefits, disability retirement pay, and survivor benefit plan distributions may also require careful review when preparing an income tax return. Service members can file accurately while identifying eligible credits and exemptions by focusing on adjusted gross income, total income, and tax-free starting points.

This guide is designed to simplify rules for military members, qualifying veterans, and surviving spouses who may feel overwhelmed by complex forms. Each section includes topics such as property tax relief, social security taxes, and gross income calculations, offering clear explanations and verified sources. Readers will find references to IRS publications and dedicated military tax resources to support accurate reporting and tax relief planning.

Military Members and Tax Responsibilities

Military members face unique tax responsibilities across federal and state levels. Active duty service members, retired service members, and honorably discharged veterans must recognize how their compensation is classified when filing an income tax return. The treatment of military income often depends on whether the payment is considered active duty pay, military retirement income, or benefits that qualify as tax-exempt. New Hampshire’s favorable system provides additional relief because wages and retirement income are not subject to a general state income tax.

Understanding taxable and non-taxable income clearly helps service members avoid costly reporting errors. Military compensation may include basic pay, special allowances, and retirement income. While basic pay is taxable under federal income tax rules, specific allowances remain excluded from gross income. Distinguishing between pay categories ensures accurate reporting on a tax return and supports proper use of deductions or credits available to qualifying veterans and their families.

Key categories of military income include:

• Active duty pay: Fully taxable as part of gross income and subject to federal income tax.
  
  
• Basic allowances: Housing, subsistence, and cost-of-living allowances are tax-exempt and excluded from adjusted gross income.
  
  
• Special pays: Hazard, flight, and submarine pays are taxable unless earned during service in a combat zone.
  
  
• Military retirement pay: Considered taxable at the federal level but exempt from New Hampshire state taxation.
  
  
• Disability retirement pay: Often excluded from taxable income if approved by the Department of Veterans Affairs.
  
  
• Thrift Savings Plan contributions: These contributions are not deductible at the federal level but grow tax-free until withdrawal.

These distinctions demonstrate why precise classification of military compensation is essential. A misunderstanding of how gross income interacts with allowances or tax-exempt categories may cause underreporting or overreporting on an income tax return. Properly separating active duty pay from allowances and retirement income prevents reporting errors, ensures compliance with federal rules, and helps claim available tax relief.

Military members must also consider the role of surviving spouse benefits, qualifying veterans’ credits, and adjusted gross income calculations in filing. By paying close attention to categories of income, taxpayers in uniform and those who have completed their service can better manage their financial obligations. Structured planning allows them to meet federal requirements while benefiting from New Hampshire’s favorable state policies.

Understanding Gross Income for Service Members

Gross income is central to determining tax obligations for military members and veterans. Federal income tax laws define gross income as all income received as money, goods, property, and services that are not legally excluded. For active duty service members, retired military pay, and surviving spouses, understanding what qualifies as gross income directly influences the accuracy of an income tax return. New Hampshire’s lack of a broad state income tax simplifies matters, but federal reporting still requires careful attention.

Adjusted gross income, often called AGI, is calculated by reducing total income with allowable adjustments such as contributions to retirement accounts. Military service members must distinguish which forms of compensation are included in total revenue and which benefits qualify for exclusion under federal law. This distinction affects eligibility for refundable tax credit programs, standard deduction levels, and property tax relief options available to qualifying veterans.

Taxable vs. Non-Taxable Income for Military Members

1. Basic Pay

• Taxable: Yes
• Tax-Exempt: No

2. Active Duty Bonuses

• Taxable: Yes
• Tax-Exempt: No

3. Hazard, Flight, and Submarine Pay (outside combat zones)

• Taxable: Yes
• Tax-Exempt: No

4. Combat Zone Pay

• Taxable: No
• Tax-Exempt: Yes

5. Basic Allowance for Housing (BAH)

• Taxable: No
• Tax-Exempt: Yes

6. Basic Allowance for Subsistence (BAS)

• Taxable: No
• Tax-Exempt: Yes

7. Disability Retirement Pay (VA-approved)

• Taxable: No
• Tax-Exempt: Yes

8. Military Retirement Income

• Taxable: Yes (federal)
• Tax-Exempt: No (except in the state of New Hampshire)

9. Thrift Savings Plan (TSP) Distributions

• Taxable: Yes (when withdrawn)
• Tax-Exempt: No (while contributions grow tax-free)

10. Survivor Benefit Plan Payments

• Taxable: Yes
• Tax-Exempt: No

For each tax year, service members must calculate total income accurately before moving to adjusted gross income. If specific allowances are excluded, taxpayers reduce their reported taxable income, lowering their liability. Excluding combat pay and other tax-free allowances protects service members from overreporting income while ensuring full compliance with federal filing requirements.

Clear separation of taxable categories, such as basic pay and retired service members’ military retirement income, from non-taxable categories, such as disability retirement pay, avoids confusion on tax forms. Proper reporting also benefits surviving spouses and qualifying veterans who may seek property tax relief or federal credits. This structure reinforces confidence in filing and ensures fair treatment under federal income tax rules.

Combat Zone Pay and Exclusions

Combat zone pay exclusions provide significant tax relief for service members in designated areas. Understanding the step-by-step process of how exclusions work ensures accurate reporting and prevents errors on an income tax return. Rules apply differently to enlisted personnel, warrant officers, and commissioned officers, but all federal active duty members benefit from these provisions when deployed.

Step 1: Determine Eligibility

Active duty service members deployed to an IRS-designated combat zone qualify for exclusions. Eligibility applies from the first day the individual enters the combat zone, so the exclusion covers the entire month, regardless of the specific arrival date.

Step 2: Identify Excludable Pay

Enlisted personnel and warrant officers can exclude income earned through active duty pay, reenlistment bonuses, and accrued leave. For commissioned officers, exclusions are capped at the highest enlisted pay rate plus imminent danger or hostile fire pay. This limitation prevents unlimited exclusions while still offering significant relief.

Step 3: Apply Exclusions to Income

Combat zone pay is not included in gross or adjusted gross income when calculating federal income tax. This allows service members to exclude income earned while deployed, reducing taxable income for that tax year. Exclusions also apply to specific special pays linked to combat service.

Step 4: Claim Filing Extensions

Service members serving in combat zones automatically receive extensions for filing an income tax return, paying taxes owed, and claiming refunds. The extension period includes at least 180 days after leaving the combat zone. Spouses filing jointly also benefit from these extensions.

Step 5: Verify Designated Zones

The IRS provides a current list of designated combat zones for each tax year. Service members should confirm whether their deployment location qualifies before excluding income. The IRS Combat Service Exclusion page lists all eligible zones and supporting details.

Combat zone exclusions ensure that military members deployed to high-risk areas are not burdened with unnecessary tax obligations. These steps simplify reporting, lower taxable income, and acknowledge service members’ sacrifices. By excluding combat pay from total revenue, enlisted personnel and officers can lower their liability and maintain compliance with federal requirements.

Tax Credits and Refundable Credits for Military Families

Military families may qualify for valuable tax credits that reduce federal income tax liability and sometimes result in a refund. Understanding which credits apply to service members, surviving spouses, and qualifying veterans helps ensure accurate filing and maximizes tax relief opportunities.

Earned Income Tax Credit (EITC)

• The Earned Income Tax Credit benefits working families with low to moderate income.
  
  
• Combat zone pay can be included in adjusted gross income if eligibility increases.
  
  
• Military members with qualifying children often benefit the most from this refundable credit.

Child Tax Credit

• Families may claim the Child Tax Credit for each dependent child who meets age and residency rules.
  
  
• The refundable portion may provide a payment even if the taxpayer owes no federal income tax.
  
  
• Active duty service members frequently rely on this credit to reduce their liability for the tax year.

Education Credits

• Military families paying tuition for themselves or dependents may qualify for the American Opportunity Tax or Lifetime Learning Credit.
  
  
• These credits reduce federal income tax based on eligible education expenses.
  
  
• Spouses using GI Bill benefits may coordinate with education credits to maximize value.

Retirement Savings Contributions Credit

• Known as the Saver’s Credit, this refundable tax credit rewards contributions to retirement accounts.
  
  
• Contributions to a Thrift Savings Plan may qualify when adjusted gross income is within the eligible limits.
  
  
• Retired service members returning to civilian work may also claim the credit if they contribute to employer-sponsored plans.

Credits for Disabled Veterans

• Qualifying veterans with a total service-connected disability may receive additional tax relief.
  
  
• Some refundable credits interact with VA benefits to reduce federal income tax burdens.
  
  
• Surviving spouses may also qualify depending on household income and filing status.

Tax credits provide powerful tools for reducing tax burdens and creating fair treatment for military families. These credits are essential in strengthening financial security, from supporting child care costs to encouraging retirement savings. By carefully evaluating eligibility for refundable credits, service members and veterans can ensure that their income tax return reflects every available benefit.

Social Security Taxes and Military Retirement Pay

Military service affects both retirement income and Social Security obligations. Active duty service members contribute to Social Security through payroll taxes, determining future retirement benefits. Understanding how military and disability retirement pay interact with federal income tax and Social Security builds a clearer picture for long-term financial planning.

Social Security Taxes on Active Duty Pay

Basic pay and most taxable allowances are subject to Social Security taxes for service members. These contributions fund future benefits, including retirement, disability, and survivor programs. Excluded income, such as combat zone pay or housing allowances, does not generate Social Security credits. Active duty service creates a steady record that helps ensure eligibility for Social Security retirement benefits.

Federal Taxation of Military Retirement Pay

Military retirement pay is taxable as ordinary income at the federal level. Retired military pay must be reported on the annual income tax return, whether received as a pension or through the Survivor Benefit Plan. Disability retirement pay differs, as certain portions may be excluded from gross income if approved by the Department of Veterans Affairs. Retired service members should separate taxable portions from tax-exempt benefits when filing.

Benefits for Survivors and Retired Members

Survivor Benefit Plan payments are taxable income to the surviving spouse, even though premiums are not deductible. Surviving spouses and qualified dependents may also receive Social Security benefits based on the deceased service member’s record. Retired military pay interacts with Social Security in retirement, where total income from both sources affects adjusted gross income and may trigger taxation of benefits. Understanding this interaction helps retired service members plan for future tax years.

Social Security taxes, retirement income, and military retirement pay connect several systems affecting service members over a lifetime. Retired military members and surviving spouses must carefully track taxable and non-taxable benefits to avoid reporting errors. By recognizing how Social Security interacts with military retirement income, families can make informed decisions that reduce surprises and strengthen financial stability.

Property Tax Relief and Exemptions for Disabled Veterans

New Hampshire offers meaningful property tax relief to honorably discharged veterans and their families, particularly those with service-connected disabilities. While the state does not impose a broad income tax, local taxes such as property assessments can still create financial challenges for military households. Municipalities provide exemptions and credits to ease property tax burdens for qualified disabled veterans and surviving spouses.

Eligibility for exemptions often depends on a veteran’s disability percentage, primary residence status, and length of military service. Municipal programs allow veterans with partial or total service-connected disability ratings to apply for property tax relief. Some local governments also extend assistance through property tax deferral options, easing the financial burden for permanently disabled veterans who may struggle with taxable property value assessments.

Common Property Tax Benefits for Veterans

• Partial property tax exemptions: These are available to qualified disabled veterans with lower disability ratings, reducing taxable property value by a set amount.
  
  
• Total exemptions for totally disabled veterans: Some municipalities offer full property tax exemptions for veterans with 100% service-connected disability.
  
  
• Property tax deferral programs: Eligible veterans may postpone payments, easing cash flow while protecting their primary residence from immediate collection.
  
  
• Surviving spouse benefits: Widows or widowers of service members may continue receiving property tax credits, ensuring continuity of relief.
  
  
• Vehicle registration fee reductions: Certain municipalities provide discounts or exemptions to disabled veterans for vehicle-related local taxes.
  
  
• Additional local credits: Towns and cities may adopt extra credits by vote, further reducing the property tax burden for qualifying veterans.

Municipal assessors require documentation such as disability rating letters, DD-214 forms, or proof of primary residence before granting benefits. Deadlines typically align with the start of the tax year, making timely applications critical. Veterans and families must review local rules carefully since property tax relief varies by municipality.

Property tax relief programs offer long-term financial stability for disabled veterans, totally disabled veterans, and surviving spouses. By lowering taxable property value or deferring payments, these exemptions help preserve homeownership and independence. When paired with state-level income tax advantages, these programs strengthen the overall financial security of military families in New Hampshire.

Military Spouses, Domestic Partners, and Residency

Due to frequent relocations, military spouses and registered domestic partners often encounter complicated residency and tax issues. Federal protections exist to help nonresident service members and their families maintain stability while avoiding double taxation. Understanding these rules ensures accurate income tax return filing and prevents unnecessary financial strain.

Residency Rules for Spouses

• Military Spouses Residency Relief Act (MSRRA): This law allows a military spouse to maintain residency in the same state as the service member, even when stationed in another location. This provision helps spouses avoid establishing a new tax residence after each move.
  
  
• Shared state residency choice: A spouse may share the service member’s residency for tax purposes, ensuring both file under the same primary residence rules.

Registered Domestic Partners

• Recognition under federal tax law: Registered domestic partners cannot file jointly and must report income separately under individual returns.
  
  
• Impact on local taxes: Municipalities may impose vehicle registration fees and local taxes separately, even when federal law does not recognize the partnership for joint filing.

Nonresident Service Members

• Protection from state taxation: Nonresident service members typically do not pay taxes on military income earned while stationed in New Hampshire. This benefit reduces filing complexity and preserves residency ties with the original state.
  
  
• Spousal employment considerations: Working spouses may need to file an income tax return in their home state, depending on residency elections made under MSRRA.

Surviving Spouse Considerations

• Maintaining residency status: Surviving spouses often retain the same residency protections previously applied to the service member, reducing confusion when filing future returns.
  
  
• Eligibility for property tax relief: Many municipalities extend veterans’ property tax benefits to a surviving spouse, provided they occupy the primary residence.

Residency decisions directly affect how military families pay taxes at the federal and local levels. Spouses, domestic partners, and nonresident service members must carefully apply residency protections to remain compliant while avoiding unnecessary taxation. By clarifying residency rules and filing obligations, military households can navigate frequent moves with greater confidence and stability.

Veterans Affairs and Retirement Benefits

Veterans and retired service members must understand how federal rules and state exemptions affect their retirement income. The combination of military retirement pay, disability retirement pay, and Department of Veterans Affairs benefits requires careful review during each tax year. Proper classification ensures fair treatment and helps families claim the tax relief available under federal and state rules.

Department of Veterans Affairs (VA) Benefits

The Department of Veterans Affairs provides monthly compensation for service members with total service-connected disability ratings. These payments are excluded from gross income and do not appear on income tax returns. Veterans Affairs benefits include dependency compensation, survivor benefits for family members, and housing allowances for qualifying veterans. Because they are excluded, these funds do not affect adjusted gross income calculations.

Disability Retirement Pay

Disability retirement pay may be taxable or tax-exempt, depending on the circumstances. If the payments are approved through the Department of Veterans Affairs, they are tax-exempt and excluded from total income. The income is taxable retirement pay if the payments come through a standard military retirement process without VA approval. Careful classification protects veterans from reporting errors and ensures accurate income tax treatment.

Military Retirement Income

Military retirement income is treated as ordinary income at the federal level and reported annually on an income tax return. Retired military pay is subject to federal income tax, but New Hampshire does not impose a state tax on retirement income. Survivor Benefit Plan distributions are taxable to the surviving spouse, even though premiums are not deductible. For detailed guidance, the IRS Tax Information for Members of the Military explains how retirement and survivor programs interact with federal tax law.

Retirement benefits and Veterans Affairs programs form the foundation of long-term financial security for retired service members and surviving spouses. Disability retirement pay, retired military pay, and survivor benefit plan distributions require careful reporting. By distinguishing between taxable and non-taxable benefits, veterans can secure compliance while maximizing the relief that both federal and state systems provide.

Common Mistakes and Tax Relief Options

Military members often face complex filing requirements, which increases the likelihood of mistakes. Recognizing these errors and using available tax relief programs ensures accuracy and reduces stress during each tax year.

1. Misreporting Combat Pay

Combat zone pay is excluded from gross income, yet errors occur when reported as taxable wages. This inflates adjusted gross income and creates incorrect tax returns.

2. PCS Deduction Errors

Permanent Change of Station deductions are frequently mishandled. Meals and non-qualifying costs are sometimes claimed, even though only transportation, storage, and lodging apply.

3. Filing Multiple State Returns

Nonresident service members occasionally file state returns in every duty location. Residency protections prevent this unnecessary duplication, especially in New Hampshire.

4. Ignoring Spousal and Survivor Benefits

Surviving spouse benefits and standard deduction opportunities remain underused. Families lose valuable relief when these rights are not claimed.

5. Overlooking Relief Programs

The IRS Armed Forces Tax Guide highlights extensions, repayment plans, and other relief tools. These programs support military families who cannot pay taxes immediately.

Avoiding these mistakes allows service members and families to maintain compliance while securing meaningful tax relief. Careful filing strengthens financial security and reduces long-term risk.

Frequently Asked Questions

Do military members in New Hampshire pay state income tax?

Military members stationed or residing in New Hampshire do not pay state income tax on active duty pay or military retirement income. While they still file a federal income tax return, wages, pensions, and military compensation remain free of state-level taxation. This favorable environment allows service members to focus on their federal obligations while enjoying long-term state tax relief benefits.

How does gross income affect my federal income tax return?

Gross income includes basic pay, bonuses, and taxable allowances, while adjusted gross income accounts for deductions and exclusions. For military families, excluding combat pay and tax-exempt allowances significantly reduces total income reported to the IRS. Accurate calculation of gross income and adjusted gross income ensures that service members qualify for appropriate tax credits, properly claim deductions, and avoid overreporting on their income tax returns.

What property tax relief is available for disabled veterans?

Disabled veterans may qualify for partial property tax exemptions or full property tax relief, depending on their disability percentage and municipality. Permanently and totally disabled veterans often receive complete property tax exemptions for their primary residence. Some towns also offer property tax deferral programs or reduced vehicle registration fees. These benefits provide substantial long-term savings while supporting financial stability for qualifying veterans and surviving spouses.

Can military families claim refundable tax credits?

Military families may qualify for refundable tax credits such as the Earned Income Tax Credit, Child Tax Credit, or education-related credits. Combat zone pay may be included in adjusted gross income if it improves eligibility for these programs. Refundable credits lower liability or generate refunds for service members, spouses, and surviving spouses filing an income tax return during the tax year.

How are social security taxes applied to service members? 

Active-duty service members pay Social Security taxes on basic pay and taxable special allowances. These contributions build retirement and survivor benefits under the federal system. Excluded income, such as combat zone pay, does not contribute to Social Security credits. Retired military pay remains subject to federal income tax but does not affect Social Security taxes. Understanding this interaction helps retired service members plan for future income needs.

Do surviving spouses receive ongoing tax benefits?

A surviving spouse may qualify for continued property tax relief, veterans’ credits, and Survivor Benefit Plan payments. Survivor Benefit Plan income is taxable, but property tax programs often extend benefits for the primary residence. A surviving spouse may also claim tax credits based on adjusted gross income. These programs ensure families of deceased service members maintain stability and continue receiving necessary forms of tax relief.

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