Military Personal Finance BenefitsUpdated: March 31, 2020
Joining the military means many things, but for those who serve in the Army, Navy, Marine Corps, Air Force, and Coast Guard, there are some important financial benefits aside from a steady paycheck and a new career.
Did you know that certain military finance practices allow service members to get advance pay up to a full month under the right conditions? This is effectively an interest-free loan for one month of pay in connection with a permanent change of station move (PCS) or other circumstances we’ll explore below.
The point is, there are plenty of hidden perks and personal finance benefits associated with serving in the United States Military. Some of them are obvious, some are “hidden” in the sense that if you don’t know about them, you won’t be able to use your military personal finance benefits to their fullest extent.
Military Basic Pay
Basic pay is described by the DoD as the “largest component” of military pay. It is based on the number of years of military service overall (Time In Service) and the number of years in the current military pay grade (Time In Grade).
These two variables make calculating your Basic Pay tricky but the military’s finance and accounting officials create charts that show each year’s basic pay standards; those are subject to change depending on the amount (if any) of the annual military pay raise authorized by law and other factors.
These pay charts show how much you will make based on your Time In Grade and Time In Service.
Basic Pay itself is not a “benefit” per se, but the same factors that determine how much pay you get based on Time In Grade/Time In Service (one, or both depending on the allowance) will determine how much you are paid for military financial benefits such as your housing allowance, separate rations, etc. and it’s good to get used to the processes used to calculate your Basic Pay in light of that fact.
Special & Incentive Pay
There are a variety of situations where a military member may be eligible to earn Special & Incentive Pay. If you have a foreign language proficiency it may be possible to take a proficiency exam to qualify for special pay for having and using those language skills. Military pilots may be eligible for certain kinds of extra pay.
Those deployed to combat zones may qualify for Hazardous Duty pay, and there are many other types of incentive pay options designed increase retention in critically short-staffed areas.
Any active duty military member with Permanent Change of Station (PCS) orders and 30 days out from making that PCS move (or within 60 days following the move) may be permitted to apply for advance pay totalling a full month of Basic Pay based on Time In Grade and Time In Service, minus the usual deductions.
This amount of Advance Pay could, in theory and with the permission of the gaining Unit Commander, be extended to as many as three months of advance pay.
Military Advance Pay amounts to an interest-free loan for the military member-a loan that is worth much more because of the lack of interest rate, service charges, closing costs, or other expenses you would encounter at a bank applying for a personal loan in the same amount.
Advance Pay is not dealt with like a personal loan-the military member simply submits a written request on a form provided by the Finance office or online, and the request is approved or denied.
When Advance Pay requests are approved, the money is paid back in the form of a fixed deduction from the military member’s paycheck scheduled to last until the money has been repaid.
Advance Pay benefits are also available to Reservists who are called up for active duty totalling 140 days or more, as well as Reservists who are on extended active duty.
A military allowance is not the same thing as Basic Pay; an allowance is money a service member is authorized to receive under certain circumstances such as living off-base in the local community where a Housing Allowance is authorized. A military housing allowance is an excellent example of a military allowance in that it checks most of the boxes typical of military allowances:
- Generally, military allowances including the Housing Allowance and the “separate rations” allowance formally known as BAS (Basic Allowance For Subsistence) are not federally taxable;
- Military allowances are paid for a specific need such as housing, clothing, food, etc.
- Military allowances may be calculated at a flat rate such as BAS or based on Time In Grade and/or Time In Service. The Housing Allowance is based on zip code, rank, and the year.
The tax-free nature of these allowances give the military member more financial clout without the added liability of a higher tax bill. This is a definite side-benefit with real financial implications for those who find their housing allowance to be a substantial one because of living in high-cost areas such as California, New York, etc.
One of the military’s critical retention tools is the reenlistment bonus. These bonuses are not paid to all who re-enlist, but those doing so in critical career fields that are hard to staff will find the bonuses can be quite attractive.
The rules for reenlistment bonuses vary depending on the branch of military service. The amounts also vary, and the conditions under which troops can earn these bonuses are subject to change.
A good example of how reenlistment bonuses are handled comes from the Air Force official site. The Air Force calls its reenlistment bonus the Selective Retention Bonus (SRB) and is described as, “…a monetary incentive paid to Airmen serving in certain selected critical military skills who reenlist for additional obligated service.
The bonus is intended to encourage the reenlistment of sufficient numbers of qualified enlisted personnel in military skills with either demonstrated retention shortfalls or high training costs.”
In the Air Force, you are required to remain in the bonus-earning specialty for the full duration of the enlistment the bonus was paid for. Air Force members are not offered SRB if they reenlist or extend their enlistments “for any purpose other than continued active service in the SRB skill”.
Re-enlistment bonuses are not tax-free, and may be subject to capital gains tax or other federal taxes as applicable in the tax year when the bonus is paid.
The Department of Defense Savings Deposit Program (SDP) For Deployed Service Members
The Department of Defense Savings Deposit Program is intended to help service members in combat zones with financial incentives including 10 percent interest for the SDP savings account; those deployed can contribute as much as $10 thousand per deployment in this high-interest savings account.
The SDP account may not be closed until the service member is no longer deployed in the combat zone.
When the military member chooses to close the SDP account, the funds and accrued interest are returned to the military member 120 days later. You are allowed to continue earning 10 percent interest up to three months after the combat zone deployment has ended. When the SDP account reaches a $10,000 balance, amounts over the $10,000 limit can be withdrawn quarterly.
The Military’s Thrift Savings Plan
Those who sign up for the Thrift Savings Plan (TSP) are using a federally provided retirement savings and investment plan. It is intended for military members and Federal employees and provides “the same types of savings and tax benefits that many private corporations offer their employees under 401(k) plans” according to the TSP official site.
TSP accounts are considered defined contribution plans; your contributions are matched by the government and there are two types of plans you can choose from:
- Making financial contributions on a pre-tax basis, which would require the service member to pay taxes on the funds when it’s time to retire OR;
- Making TSP contributions after your pay has been taxed, and having no further tax liability on the funds at any time.
TSP is not automatic and you will be required to sign up for the program and approve deductions from your military pay to contribute. The maximum amounts you may contribute to TSP accounts is set each year by the Internal Revenue Service.
The GI Bill
The GI Bill is among the most important military benefits not directly associated with pay and allowances. The GI Bill pays the full cost of in-state tuition and fees at public institutions of higher learning, and up to a specified amount for private colleges.
There is a housing stipend based on the zip code where the student will attend most classes, funds for books and other expenses, and thanks to certain changes made to the GI Bill in recent years, the benefit is transferable to a spouse or dependent children. The GI Bill had an expiration date at one time; those signing up for the military today will find their GI Bill benefits have no expiration.
Selling Back Unused Leave
There is one personal finance benefit that military members can take advantage of if they are leaving the military with an Honorable discharge; the ability to sell back up to 60 days of accrued leave that was not used during military service.
Military members can sell back the sixty days or less and be paid a lump sum for those days subject to taxes. This can be quite helpful for those who need extra cash during the transition from military to civilian life, but some may balk at the taxation rate for doing so and opt to take Terminal Leave instead.
Taking Terminal Leave basically means that you are still in the military for the duration of that Terminal Leave, earning all pay and benefits including your housing allowance and other pay. But when your leave ends, you are no longer in the military and have no obligation to show up for work at your final duty station.
Terminal Leave may be the preferred alternative to selling back unused leave for many since there are no extra taxes on your pay while on Terminal Leave status and those using the leave for a month or longer are still earning leave days that can be added to the total Terminal Leave amount.
Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter for Air Force Television News