HR 823119th CongressIn Committee

Heroes’ Tax Exemption Act of 2025

Introduced: Jan 28, 2025

Standard Summary

Comprehensive overview in 1-2 paragraphs

The Heroes’ Tax Exemption Act of 2025 would completely exempt active-duty military personnel from federal income tax on all income earned while in active service. It would add a new section to the Internal Revenue Code (Sec. 139J) stating that gross income shall not include any amount earned by an active-duty member of the Armed Forces, and would set a delayed effective date (income earned after the second October 1 following enactment, likely Oct. 1, 2026). The bill would thus remove federal income tax liability for active-duty pay and related compensation, shifting a significant amount of tax revenue loss onto the federal budget.

Key Points

1Establishes a new Sec. 139J in the Internal Revenue Code: “Gross income shall not include any amount earned by an active duty member of the Armed Forces.”
2Clerical change: inserts Sec. 139J into the table of sections for the relevant subchapter and part of the Code.
3Effective date: applies to income earned after the second October 1 occurring after the date of enactment (likely Oct. 1, 2026, for a 2025 enactment).
4Scope: covers active-duty service members in the Armed Forces; does not explicitly address reserve components unless they are on active duty.
5Policy consequence: creates a broad, permanent income tax exemption for active-duty pay and related earnings, with sizable revenue and budget implications and implications for payroll withholding and administrative systems.

Impact Areas

Primary group/area affected: Active-duty servicemembers (all branches of the Armed Forces).Secondary group/area affected: U.S. Department of the Treasury and IRS (loss of federal income tax revenue; changes needed to withholding and tax processing), defense payroll administration, and military personnel managers.Additional impacts: Potential effects on federal budgeting and deficits, interactions with existing combat-pay and other allowances (some components may already be excluded from gross income; this bill would replace or supersede those provisions for active-duty earnings), and possible ambiguity regarding coverage of Space Force and National Guard units on active duty.

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