Enlistment Bonuses

• Both active-duty soldiers and reserve soldiers are eligible for enlistment bonuses. The exact amount of each bonus varies, depending on the branch of service. As of 2011, the U.S. Army offers enlistment bonuses of up to $40,000 for active-duty personnel and up to $20,000 for reserve soldiers. As of 2011, the U.S. Air Force offers various enlistment bonuses based on applicants' skills.
  
  

Tax Treatment of Military Pay

• According to the IRS, military income is taxable as earned income for most taxpayers. Military service members who receive income during the tax year should report their earnings on their federal income tax returns. Reenlistment bonuses are also taxable.
  
  

Exempt Military Income

• The only exception to the tax treatment of military pay applies to soldiers who serve in combat zones. These service members who choose to reenlist may receive a reenlistment bonus. Since they are serving in a combat zone, the pay they receive during their tours of duty is exempt from tax. This special exclusion also applies to the reenlistment bonus if they become eligible for it while they are serving in combat.
  
  

Reporting Military Income

• Military members receive Form W-2 statements from the U.S. military at the end of each year. They should report the taxable amount of their wages as earned income on Form 1040. The W-2 statements do not include combat pay and reenlistment bonuses as taxable income.