Transitioning? These taxes might eat up your paycheck

Understand your future tax bill now

April 07, 2018 - 7:00 am

When you are transitioning, there are several bumps in the road.  Finding a job, settling into a home and starting a new life are exciting but not easy tasks.

One bump that no one tells you about is taxes.  And you better be prepared for it.

Specifically, as a member of the military, you've recieved tax free compensation:  basic allowances for housing and sustenance.  You've depended on that money for your living expenses.  In fact, those allowances may have made up a substantial part of your income.  When you are employed in the private sector, those allowances go away, and even though you may be "making more," you'll be in a higher tax bracket and you'll be taxed more.  Be prepared to pay more.

In other words:  until now, you have only been taxed on your base pay.  That might be only a 15% tax bracket.  Add in the money that housing and sustenance brings, and it may seem your salary is higher.  But in the civilian world - that might bump you up to the 25% tax bracket.  That's significantly more money being pulled from your paycheck.  The Military Wallet explains it well here with practical examples.

Besides BAH and BAS, consider the tax rate for the state and town you are planning to live in.

As an active duty member, you've been able to claim residency in whatever state you established a home, despite being PCS'ed.  That disappears once you separate.  You will be beholden to the local income taxes of whatever state you live in.  Research where you are considering moving.  Some states (like Texas, Florida and Nevada) have no income state income tax.  Others don't tax military retirement pay (like Wisconsin, Pennsylvania and New Jersey, for example).

Those state taxes can cut into your paycheck.

WalletHub ranks the best states for military retirees, but don't just stop there.  Make sure you check the actual tax rates for your state, county and town.

On the flip side, if you're headed back to school after transitioning, you may be eligible for some tax breaks and refunds.  Check here for details. 


University of Maryland University College is a proud partner of Connecting Vets.  For more help transitioning, click here for UMUC's MIL-VET Checkpoint.