There are four difference types of living allowances: (1) Basic Allowance of Housing BAH, (2) Basic Allowance for Subsistence BAS, (3) housing and cost of living allowances abroad paid by the US government or foreign government, and (4) Overseas Housing Allowance OHA.
Housing allowances are provided in areas where governmental housing may not be provided. It is to fill the gap between what the serviceman is given in salary, and the actual cost of living within the area he/she is stationed. Both BAH and BAS are tax exempt from federal and state taxes, as well as social security. This provides the members with an almost 30% tax break in many cases.
These two allowances are the most popular among those serving in the military within the continental United States. OHA is for those living abroad and serves with the same tax advantage as BAH and BAS. These rates are based upon the area of which the service member is residing, as well as number of dependents if any.
Service men and women can go to any Volunteer Income Tax Assistance VITA center to obtain more information regarding tax-exempt cost of living allowances. If members choose to have a tax professional, certified public accountant, or enrolled agent, tax preparation fees are deducted the year incurred.