Summary

Excludes most uniformed services retirement pay and a wide range of disability, combat-related, and survivor payments from federal gross income so those amounts are not taxable for federal income tax purposes. It also clarifies how reduced retirement pay for non-Armed Forces uniformed service members is phased out and defines what counts as "consideration for the contract." Applies these changes to federal income tax law, updates related cross-references, repeals an obsolete U.S. Code provision, and makes the changes effective for taxable years beginning after enactment. No new program spending or appropriations are created by the text itself.

• Removes most uniformed services retired or retainer pay from federal gross income, making it non-taxable for federal income tax purposes.
• Excludes monthly compensation, pensions, pay, annuities, or allowances tied to disability, combat-related injury/disability, or death under titles 10, 14, 37, or 38 from gross income.
• Provides special rules for reduced retirement pay in non-Armed Forces uniformed services, tying exclusion limits to the "consideration for the contract."
• Defines "consideration for the contract" to include pre-1966 reductions and specific deposits under certain U.S. Code provisions.
• Revises related tax code cross-references and repeals an obsolete U.S. Code section (10 U.S.C. §1403).
• Effective for taxable years beginning after enactment; requires IRS updates to forms and guidance for implementation.
• Does not appropriate new funds or create a new entitlement program; it changes federal income tax treatment only.
• May reduce federal income tax revenue to the extent covered payments were previously taxable.
• State income tax effects may differ depending on each state's conformity to federal tax law.
• Targets benefits linked to military service, disabled service members, survivors, and retired uniformed service members.