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U.S. soldiers in Gulf get a break: their pay while overseas is tax-free

CAMP MATILDA, Kuwait—As the April 15 tax deadline draws closer, a common topic among soldiers now encamped in Kuwait is what to do with the extra money they are seeing because their military pay is tax-free while they are overseas.

For some, the money is truly a windfall—to be spent by spouses on extras back home. For others, the tax break helps make up for larger salaries lost when a reservist was called away from a higher-paying civilian job.

"We started buying the house before I was mobilized. My wife had to close (the house sale) and move without me," said Staff Sgt. John Donahoo, 33, from Williamsburg, Va.

Donahoo was a group manager at the Anheuser-Busch brewery in Williamsburg before he was called up and is among the fortunate. The brewery has 900 employees, and he was the only one mobilized. His employer has continued him on the payroll, making up the pay difference between his civilian job and what he draws now driving amphibious troop carriers with the Marines' 4th Assault Amphibian Battalion. The 27-ton armored and armed vehicles will carry 18 Marine infantrymen each across Iraqi marshes should U.S. troops be ordered into battle.

"I'm a pet project for the brewery," said Donahoo, who also served in the Gulf War in 1991.

With extra military benefits, reduced living expenses for himself and the tax-free status of the money he's earned overseas, Donahoo estimates he's gotten a $3,000 a month raise while he is in the Middle East.

Military pay runs about $12,000 per year for the newest recruit to more than $30,000 for a midlevel sergeant. Officers' pay begins at about $24,000 per year.

Donahoo said the extra money would help his wife, Shannon, move into and decorate their new home and keep her from having to work outside the home while caring for their 2-year-old son, Tanner. He said he was keeping just $20 a month for a petty gambling fund. When he returns home, he expects to retake his civilian job "right back where I left off."

Lance Cpl. Mike Perry, 24, of Mobile, Ala., has a different story. His monthly income was cut $200 to $300 a month when he left his job as an air-conditioning and refrigeration technician.

The tax-free status of his income overseas helps cushion that blow—"the pay will probably average out the same," he said—and his employer, with 40 employees, has promised to re-hire him when his deployment ends.

But nothing will make up for being away from home. His wife became pregnant in July and will graduate from college this spring.

"I'm going to miss her graduation," said Perry, who likely will also miss the birth of his child.

"She was pretty torn up about it," Perry said of his wife. "She just wants me to come home."


(c) 2003, Knight Ridder/Tribune Information Services.

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