Two lawmakers want to fully exempt military compensation from federal income tax — a move that would deliver a significant pay boost for service members and mark one of the most sweeping tax changes for the military community.

The legislation, dubbed the Service Members Tax Relief Act, seeks to eliminate federal income tax on all active-duty and reserve pay, including enlistment, retention and education bonuses and all special and incentive pays.

The measure would go well beyond previous tax-exemption proposals, which largely focus on bonuses or specialty pays.

In May, for example, a bipartisan group of lawmakers introduced the BONUS act, which would amend a section of the Internal Revenue Code of 1986 to explicitly exempt all military bonuses from federal income tax.

“The bill builds on existing tax exclusions for certain military benefits and responds to long-standing concerns raised by troops, families and advocates who believe those who serve should not be taxed on the bonuses they earn in service to our country,” Rep. Jen Kiggans (R-Va.), the sponsor of the BONUS act, said at the time.

Similarly, the No Tax on Bonuses Act, introduced in April, seeks to exclude service members’ enlistment and reenlistment bonuses from gross income.

Currently, service members deployed to combat zones receive tax-free income. In addition, most allowances that make up a significant portion of a service member’s total compensation, including basic allowance for housing and basic allowance for subsistence are tax-exempt.  Veterans’ disability compensation is also exempt from federal income taxes. Together, these exemptions amount to roughly $30 billion a year in foregone federal income tax revenue each year. 

Sen. Pete Ricketts (R-Neb.) and Rep. Abe Hamadeh (R-Ariz.), who introduced the Service Members Tax Relief act this week, are also sponsoring the Tax Cuts for Veterans Act of 2025, a measure that would amend Section 122 of the Internal Revenue Code to exclude all military retirement pay and veterans’ benefits from federal income taxes. This includes all retired and retainer pay under Titles 10 and 14, as well as all VA monthly benefits, including disability compensation and survivor payments covered under Titles 37 and 38. 

The two measures stand apart from prior proposals, as no recent bill has attempted a tax exemption of this scope.

“It is pretty sweeping… and it’s potentially a very expensive proposal. Now, there’s a reason why Congress has, on a bipartisan basis, provided these existing tax exclusions for military and veterans benefits — there’s a wide bipartisan appreciation for the fact that if you served our country, put your life and put your body on the line — you’re receiving benefits that you deserve for that service…I think any proposal that costs tens of billions of dollars per year, Congress is going to scrutinize,” Andrew Lautz, director of tax policy at the Bipartisan Policy Center, told Federal News Network.

It is unclear what strategy the sponsors plan to pursue — standalone bills often face political hurdles, and lawmakers frequently try to attach such proposals to larger legislative packages like the annual National Defense Authorization Act to increase their chances. 

“These bills are fiscally conservative in that they offer relief through the tax code instead of new spending. It is a win-win; the exemption instantly improves take-home pay, while helping with recruitment and retention, which in turn keeps our war fighters strong,” Hamadeh said.

Lautz pushed back on the idea that the bills are “fiscally conservative,” arguing that a dollar of a tax cut that isn’t offset adds to the deficit just as much as a dollar of new spending that isn’t paid for.

“If you’ve got $100 billion spending program or the $100 billion tax cut, and you’re not paying for that — that is not fiscally responsible. Now, Republican lawmakers have shown a preference for cutting taxes over increasing government spending, and Democrats vice versa, that is an unmistakable trend. But in terms of the fiscally responsible approach here, I think the message we’ve sent to both parties is that if you’re going to have a large tax cut or you’re going to have a large spending increase, you should pay for it with offsetting either spending cuts or tax increases,” Lautz said.

While the proposal would eliminate federal income taxes on military pay, active-duty and reserve personnel would still be paying payroll taxes on their income.

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The Marine Corps is rolling out new enlistment bonuses for fiscal 2026, offering its biggest payout to recruits who sign up for specialized roles in cyber and electronics maintenance.

The incentives aren’t limited to high-demand technical roles — the service is also offering shipping bonuses to recruits in any specialty who agree to leave for boot camp on the service’s schedule.

In a message to the force, the service announced it would offer bonuses of up to $15,000 to recruits who enter the electronics maintenance and cyber and cryptologic operations career fields, which include specialties such as cyber network operators, electronic intelligence and electromagnetic warfare analysts, cryptologic linguists and tactical data systems technicians.

Recruits across dozens of military specialties, including open contacts, combat support, accounting and legal, logistics and even infantry, can also qualify for a $5,000 or $10,000 shipping bonus if they agree to ship quickly to boot camp.

The service is also offering $7,000 or $15,000 “targeted investment” bonuses for applicants willing to extend their enlistment contracts by one or two years.

The Marine Corps has long struggled with a high turnover rate among newly enlisted troops, discharging about 75% of first-term Marines each year. In the last couple of years, the service has been overhauling its approach to recruiting and retention, moving away from a “recruit and replace” personnel model that it adopted more than a generation ago toward one focused on “investing and retaining.” 

“The Marine Corps’ objective is to maximize the number of fully trained, qualified, experienced, and deployable Marines in the Fleet Marine Force (FMF) over time and within any given personnel budget. As we progress towards an ‘invest and retain’ model, it is critical to channel applicants into the right occupational fields to maximize our return on investment and increase Marines’ propensity to serve beyond their initial contract,” the message said.

Active-duty recruits are only eligible for one enlistment bonus, and the amounts may be adjusted throughout the fiscal year depending on the recruiting environment. 

In addition, the Corps is expanding incentives for the Selected Marine Corps Reserve — recruits in critical billets can receive up to $10,000, while others can qualify for $6,000 if they commit to six years of service and complete all initial training requirements. The Reserve enlistment bonus is paid in a lump sum after recruits complete their training and MOS school. 

Reserve Marines can also qualify for the Montgomery GI Bill Selected Reserve program, which provides up to $350 a month for as many as 36 months to offset education costs.

Congress’ inability to pass a full-year budget last fiscal year led to widespread delays in bonus payments for Marines and other service members across the Defense Department — in March, Congress extended a continuing resolution through the end of fiscal 2025, marking the first time the Pentagon had to operate under a CR for the entire year.

In April, the service announced that payments under the Selective Retention Bonus Program would now be made on a funding-available basis, with Oct. 1 as the earliest possible payout date. It is unclear how the ongoing government shutdown will impact the Marine Corps’ rollout of the new enlistment bonuses.

The fiscal 2026 enlistment incentive programs will remain in effect through Sep. 30, 2026.

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