No Tax on Bonuses Act of 2025
The No Tax on Bonuses Act of 2025 would amend the Internal Revenue Code to exclude certain military bonuses from a service member’s gross income for federal income tax purposes. Specifically, the bill creates a category called a “qualified bonus” and provides that such bonuses—paid by the Secretary concerned in exchange for commitments related to commissioning, extending service, enlisting, reenlisting, or entering reserve affiliations—are not included in gross income. The change is designed to apply to taxable years beginning after enactment and includes conforming edits to related tax code sections to reflect the expanded exclusion. In effect, service members who receive these enlistment, reenlistment, retention, or related bonuses would not owe federal income tax on the amounts designated as qualified bonuses in the year they are paid. The bill also reorganizes and renames certain internal code references to accommodate the new exclusion and makes related technical amendments.
Key Points
- 1Exclusion from gross income: The bill adds “qualified bonus” to the list of compensation that is not included in a service member’s gross income for federal income tax.
- 2What counts as a qualified bonus: A bonus paid by the Secretary concerned to a member of the Armed Forces in exchange for commitments such as accepting a commission as an officer, extending an active service commitment as an officer, enlisting/reenlisting, extending an enlistment, or entering a reserve affiliation agreement.
- 3Definitions tied to military terms: The bill uses definitions of active service, enlisted member, officer, and Secretary concerned as defined in Title 10, U.S. Code.
- 4Conforming changes: The bill makes related edits to other parts of the code (e.g., renames and reinterprets section references, updates headings, and adjusts cross-references) to reflect the new exclusion.
- 5Effective date: The tax exclusion applies to taxable years beginning after the enactment date (i.e., not retroactive to prior years).