New Bill Proposes Making Military Enlistment and Reenlistment Bonuses Tax-Free

The 'No Tax on Bonuses Act of 2025' aims to change how the federal government taxes certain military bonuses. If enacted, this legislation would exclude specific bonuses paid to members of the Armed Forces from their gross income, meaning these payments wouldn't be subject to federal income tax. This applies to what the bill calls a "qualified bonus," covering payments for enlisting, reenlisting, extending service, becoming an officer, or joining the reserves, starting in the taxable years after the bill becomes law.

Keeping More Bonus Cash

So, what does this mean practically? Let's say a service member receives a $15,000 reenlistment bonus. Under current rules, that bonus is typically taxed like regular income. This bill changes that. According to Section 2, that $15,000 "qualified bonus" – whether for signing up, staying in, or hitting certain incentives – wouldn't count towards the service member's taxable income for the year. They'd keep the full amount without a cut going to federal income taxes. This covers a range of bonuses used by the military branches to attract and retain personnel.

The Bigger Picture: Recruitment and Revenue

Making these bonuses tax-free could make military service financially more appealing. The idea is that a tax exemption might serve as an extra incentive, potentially helping the Armed Forces meet recruitment goals and encourage experienced members to continue their service. It directly addresses the financial aspect of military compensation for these specific lump-sum payments. Of course, exempting income means less tax revenue collected by the federal government, which is a consideration in the broader fiscal picture.