Rewrites 26 U.S.C. §122 to (1) exclude from gross income retired or retainer pay paid under title 10 or 14, and certain amounts paid under titles 10, 14, 37, or 38 in connection with disability, combat-related injury, or death, for members or former members of the armed forces; and (2) provide that the reduced uniformed services retirement pay rules apply to members or former members of the uniformed services other than members of the armed forces, retaining the special rule regarding exclusion until an amount equal to the consideration for the contract and the definition of consideration.

Amends subsection (n) of 26 U.S.C. §72 by replacing the phrase "Subsection (b)" with a phrase that limits the application to "In the case of any member or former member of the uniformed services of the United States other than a member or former member of the armed forces, subsection (b)".

Repeals 10 U.S.C. §1403 and directs removal of the item relating to section 1403 from the table of sections at the beginning of chapter 71 of title 10.