Supplemental military housing allowance not taxable

As a result of the One Big Beautiful Bill Act (OBBBA), Congress appropriated a one-time $1,776 “Warrior Dividend”, a supplemental Basic Allowance for Housing payment to help military families manage rising housing costs, particularly in high-cost areas. The payment was issued in December 2025 to eligible active-duty and reserve service members in pay grades O-6 and below. 

The Treasury Department and the IRS recently confirmed that this supplemental payment is not taxable for federal income tax purposes.

Are Basic Allowance for Housing (BAH) payments taxable?

Housing allowances provided to members of the uniformed services are treated as qualified military benefits and are excluded from gross income under federal tax law. This long-standing rule applies to both routine Basic Allowance for Housing payments along with the one-time supplemental housing payment. As a result, these amounts should not be included in taxable income and should not be reported on the federal tax return.

Be aware that military clients may see housing payments on pay statements and assume they are taxable. Tax professionals can clarify that BAH, along with the “Warrior Dividend,” is excluded from income.

A mix of taxable and nontaxable items

The supplemental housing payment also serves as a reminder that military pay often includes a mix of taxable and nontaxable items. Review pay statements with your clients to determine which allowances are nontaxable, such as housing and clothing allowances. Asking targeted intake questions and understanding how allowances are reported can improve accuracy and reduce rework. For more information on preparing tax returns for military taxpayers, refer to IRS Publication 3, Armed Forces’ Tax Guide.