Sponsors
The bill increases after-tax pay and reduces tax-law uncertainty for service members receiving chapter 5 bonuses, at the cost of a modest loss in federal revenue and short-term administrative updates.
Active-duty service members who receive chapter 5 bonuses will have those bonuses excluded from taxable income, increasing their after-tax pay.
Military personnel and pay administrators will have clearer guidance because the change clarifies the tax treatment of chapter 5 bonuses, reducing legal uncertainty and compliance burden.
The exclusion of chapter 5 bonuses from taxable income reduces federal revenue modestly, potentially increasing the deficit or shifting tax burdens to other taxpayers.
The IRS, payroll systems, and affected servicemembers may face short-term complications in withholding and tax administration as rules and systems are updated for the exclusion effective in 2025.
Based on analysis of 2 sections of legislative text.
Excludes bonuses paid under 37 U.S.C. chapter 5 to uniformed service members from federal gross income for tax years beginning after Dec 31, 2024.
Introduced May 22, 2025 by Richard Blumenthal · Last progress May 22, 2025
Excludes bonuses paid to members of the uniformed services under 37 U.S.C. chapter 5 from federal gross income, in addition to existing "qualified military benefits." The change applies for taxable years beginning after December 31, 2024, so affected service members will not count those bonuses as taxable income on their federal tax returns for 2025 and later years.