Congress moves to exempt military pay from federal income tax
S. 3246 — Service Members Tax Relief Act · Filed by Pete Ricketts (R-NE) · Introduced Nov 20, 2025 · Referred to committee
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What it does
This bill exempts active and reserve military service members from federal income tax on compensation earned during their service, effective for tax years after enactment. The exemption applies only to active service pay, not pensions or retirement income. The bill creates a new tax code section (139M) to codify this exclusion.
Why we flagged it
The bill's sole operative mechanism is a straightforward tax exclusion for active and reserve military service pay. It is a direct, transparent tax relief measure with no riders or hidden provisions.
What the text implies
- The exemption applies only to active service compensation, not retirement pay, creating a potential cliff effect where service members lose the benefit upon retirement despite decades of service.
- No explicit definition of 'compensation' is provided in the bill text; the scope depends on IRS interpretation and existing IRC definitions, which may create ambiguity about what payments qualify (e.g., housing allowances, combat pay, bonuses).
The full analysis lists 4 implications of this text.
Who stands to gain
active uniformed service members; reserve uniformed service members