Sponsors (3)
The bill increases take-home pay and simplifies tax filing for service members by making chapter 5 bonuses tax-free starting in 2025, while causing a modest loss of federal revenue and a small risk of taxpayer confusion if not well communicated.
Military service members who receive chapter 5 bonuses will no longer owe federal income tax on those bonuses beginning in 2025, increasing their take-home pay.
Affected service members will have simpler tax filing because these bonuses no longer need to be reported as taxable income, reducing paperwork and potential filing errors.
The exclusion of chapter 5 bonuses from taxable income will modestly reduce federal tax receipts, potentially increasing budgetary pressure or reducing funds available for other programs.
If the change is not clearly communicated, some service members may misfile prior-year returns or miss necessary adjustments when the rule takes effect, creating confusion and possible follow-up burdens.
Based on analysis of 2 sections of legislative text.
Includes bonuses paid under 37 U.S.C. chapter 5 in the federal gross‑income exclusion for qualified military benefits.
Official title: To amend the Internal Revenue Code of 1986 to exclude military bonuses from gross income.
Introduced May 20, 2025 by Jennifer Kiggans · Last progress May 20, 2025
Expands the federal tax exclusion for "qualified military benefits" to explicitly cover bonuses paid to uniformed service members under chapter 5 of title 37, U.S. Code. The change makes those chapter 5 bonuses exempt from gross income for federal income tax purposes for taxable years beginning after December 31, 2024. The amendment narrows taxable income for affected service members by treating specified military bonuses as non‑taxable, reducing federal income tax liability for pay periods and tax years after the effective date.