The Military Money Manual-Tax Intro: What Military Families Need to Know About US Tax Code to Max Your Paycheck #152
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Tax Intro: What Military Families Need to Know About US Tax Code to Max Your Paycheck #152

Tax advantages, confusing tax brackets, marginal vs effective tax rates, and more!

Spencer and Jamie discuss how military service members benefit from unique tax advantages, including untaxed allowances and combat zone tax exclusions.

They also break down real examples of effective tax rates for different ranks and locations, explain tax brackets, and discuss investment implications, particularly for Roth vs traditional retirement accounts.

Main Topics & Questions Covered:

How did Jamie pay an effective tax rate of only 10% in 2023?

What military pay components are not taxed?

  • BAH (Basic Allowance for Housing)
  • BAS (Basic Allowance for Sustenance)
  • OHA (Overseas Housing Allowance)
  • Overseas COLA
  • Combat Zone Tax Exclusion Pay (CZTE)
  • Hostile fire/imminent danger pay

How do combat zone tax exclusions work?

  • Areas designated by presidential executive order
  • No limit for enlisted members
  • Officers capped at highest enlisted monthly pay

Real examples of effective tax rates for:

  • E5 at Holloman AFB (single)
  • E7 at Fort Sill (married with children)
  • O3 at Wheeler Army Airfield (married with child)
  • O5 in Hawaii (with children)

How do tax brackets actually work?

  • Progressive system explanation
  • Standard deduction impacts
  • Marriage tax advantages
  • Common misconceptions about brackets

Investment implications:

  • Roth vs Traditional retirement accounts
  • Why Roth often makes sense for military members
  • Tax considerations when transitioning to civilian life

Key takeaways:

  • Military members often have very low effective tax rates
  • Understanding true taxable income vs. total compensation
  • Importance of tracking tax information on LES
  • Resources for military tax assistance (Military Tax Experts Alliance)

The hosts emphasized two main recommendations:

  • Consider Roth retirement contributions while serving
  • Be cautious about buying houses while on active duty

Links:

For a limited time, Spencer is offering one-on-one Military Money Mentor sessions! Get your personal military money and investing questions answered in a confidential coaching call.

Our new TSP course is live! Check out the Confident TSP Investing course at militarymoneymanual.com/tsp to learn all about the Thrift Savings Plan and strategies for growing your wealth while in the military. Use promo code "podcast24" for $50 off. Plus, for every course sold, we'll donate one course to an E-4 or below- for FREE!

If you have a question you would like us to answer on the podcast, please reach out on instagram.com/militarymoneymanual or email [email protected].

If you want to maximize your military paycheck, check out Spencer's 5 star rated book The Military Money Manual: A Practical Guide to Financial Freedom on Amazon or at shop.militarymoneymanual.com.

I also offer a 100% free course on military travel hacking and getting annual fee waived credit cards, like The Platinum Card® from American Express, the American Express® Gold Card, and the Chase Sapphire Reserve® Card in my Ultimate Military Credit Cards Course at militarymoneymanual.com/umc3.

Learn how to get your annual fees waived on premium credit cards from American Express in the Ultimate Military Credit Cards Course at militarymoneymanual.com/umc3.

The Platinum Card® from American Express and the American Express® Gold Card waive the annual fee for active duty military servicemembers, including Guard and Reserve on active orders over 30 days. The annual fees on all personal Amex cards are also waived for military spouses married to active duty troops.

 

Tags

Income Taxes Military