Military Pay and Benefits

The Internal Revenue Service and Treasury Department have formally ruled that the December 2025 'Warrior Dividend'—a one‑time $1,776 payment to about 1.45 million U.S. service members—will be treated as a tax‑free 'supplemental basic allowance for housing' and excluded from federal income. In guidance released Friday, the agencies said Congress appropriated $2.9 billion last July for the supplement and that, as a 'qualified military benefit,' it falls outside gross income under federal tax law. The payments went primarily to active‑duty personnel in pay grades O‑6 and below, along with eligible reserve component members as of Nov. 30, 2025, across the Army, Navy, Air Force, Marine Corps and Space Force. Pentagon press secretary Kingsley Wilson said the ruling ensures the full $1,776 reaches 'warfighters and their families,' and Secretary of War Pete Hegseth cast it as part of a broader quality‑of‑life push as Trump touts improved recruitment and a 'reawakened' military. The decision means troops will not see the bonus clawed back at tax time, and it locks in the administration’s political framing of the payout as a symbolic, 250th‑anniversary windfall rather than taxable income.