A Civilian’s Guide To Understanding Military Pay And Allowances

A few weeks ago, a family member who is into personal finance but not in the military suggested I write a post about how pay and allowances work in the military, but written for a civilian audience so they can better understand this complicated, mysterious system.

And recently, several people have asked me to create a guide for new military members to better understand military money and the resources available to them.

I certainly can’t cover every detail of those things in a single post, but I thought today I’d cover the major components of a military member’s paycheck – basic pay, housing allowance, and subsistence allowance.

Therefore, this post is going to have two purposes:

1. It can serve as a primer for civilians who want to learn more about military life.
2. Sections will be included in the new servicemember guide I’ll be writing over the next several months.

This post will be useful for the following audience (I feel like I’m writing a thesis!):

• New military members who don’t understand military pay yet
• Civilians who work with the military
• Non-military spouses and family members of military members
• Civilians who want to better understand how the military is paid

Civilians strap yourselves in because I’m going to be using some military acronyms! If you just want to be a voyeur into the paychecks of military members, including mine, go to the bottom of the post (starting with “Putting It All Together”).

Military Pay and Allowances

The military paycheck contains a wide variety of pays and allowances. We’re only going to cover the main three today:

• Basic Pay
• Basic Allowance for Housing (BAH)
• and Basic Allowance for Subsistence (BAS)

You may have heard that military members receive tax advantages on our pay. That’s sort of true. Some of our paycheck isn’t taxed, but it isn’t the pay.

Pays

You see, military “pay” is a very specific group of compensation. All military pays are taxable unless the military member is deployed to a Combat Zone Tax Exclusion area. While Basic Pay is the most common pay, there are also special and incentive pays. These are typically used to compensate the military member for certain situations (Hardship Duty Pay, Imminent Danger Pay, etc) or skills/duties (Foreign Language Proficiency Pay, Career Sea Pay, etc).

There are over 60 special and inventive pays authorized by law, so like I said I won’t be getting into those details here. But keep the pays in mind – they can comprise a big chunk of a military member’s paycheck.

Allowances

Military “allowances” are another way we are compensated for our service, and are given for a specific need like (surprise, surprise) housing and food. If the government provides the need, the allowance is not given. Example: a military member will either be provided base housing (possibly a dorm) or will be given BAH. There are a few situations where the member will get both, such as when they are forced to live separately from their spouse and/or children, but in general it’s one or the other.

Most allowances are untaxed. BAH and BAS are untaxed, but (for instance) Cost of Living Allowances in CONUS (contiguous or continental United States) locations are taxable. Fun fact of the day: there is a law that says any military allowance created after 1986 will be taxable.

Beyond BAH and BAS, some other common allowances are the clothing (uniform) allowance, dislocation allowance (for expenses incurred when relocating to a new duty station), and family separation allowance.

Basic Pay

Basic pay (aka base pay) is based on two things – pay grade and time in service (TIS).

Pay grade is, in the vast majority of cases, tied to rank – but because the different services sometimes use very different rank names for the same pay grade (lookin’ at you, Navy) I’m going to talk purely in pay grades. Given that this post is for people who may not be familiar with the pay grades, here’s a very quick primer.

• Enlisted: pay grades E-1 through E-9 (applies to all military services – Army, Navy, Air Force, Marines, Coast Guard)
• Warrant Officers: pay grades W-1 through W-5 (applies to Army, Navy, Marines. The Air Force doesn’t currently have Warrant Officers and the Coast Guard only uses W-2 through W-4 at this time)
• Officers: pay grades O-1 through O-10 (applies to all military services)

Base pay is the one spot where all military members of equal experience (where experience = TIS) are treated exactly the same. An E-5 Explosive Ordnance Disposal tech who has been in for 6 years is paid exactly the same as a 6-year TIS E-5 working at the base gym. An O-2 Finance officer supervising a flight of 10 people, an O-2 Security Forces officer leading 150, and an O-2 fighter pilot all make the same base pay if they’ve all been in for 3 years.

The only variation from this is that if someone was enlisted or a warrant officer for at least 4 years and then becomes a commissioned officer, they will start as an O-1 (certain career fields have exceptions) but because they have prior experience, they are paid more than the O-1s who are brand new to the military. This only happens in pay grades O-1 to O-3. Once that person promotes to O-4, they earn the same as the other O-4s with equivalent TIS. Basically, the military is recognizing that they aren’t shiny-eyed fresh recruits – they have some knowledge under their belts.

So just how much does a military member receive in basic pay?

In 2018, basic pay ranges from $1514.70/month for our newest, lowest ranking recruits (E-1) to $15,800.10/month for the highest ranking officers (O-10). That means in basic pay alone a military member’s annual compensation is $18,176 to $189,600.

Don’t freak out quite yet over that E-1 basic pay! That doesn’t last long – 4 months max – and it’s only part of their compensation. Next we’ll look at what is usually the second largest portion of a servicemember’s compensation – BAH.

You can find the military pay charts on the Defense Finance and Accounting Service website if you want to see them in full.

Basic Allowance for Housing

BAH is an allowance meant to offset the cost of housing if it is not provided by the government. As with basic pay, BAH varies based on pay grade. It is also location dependent – high-cost-of-living areas have higher BAH rates than low-cost-of-living areas.

BAH is based on rental data (not homeowner data) and is updated yearly to reflect current market conditions. The goal behind the BAH amount is to cover (or close to it) equivalent housing to what a civilian member living in that area and earning approximately the same income would be able to afford. Military members will tell you that the goal is not always met!

To make a somewhat apples-to-apples comparison, you should consider that any military member who is receiving base housing – and thus not receiving BAH – is in effect getting paid that amount, even though it isn’t seen in the paycheck. I say this because when you hear that an enlisted troop is only making $18,176, you should remember that s/he is either receiving free housing (most likely) or getting additional money to procure their own housing (unlikely for the lowest ranks).

Also remember that BAH is tax-free. Depending on the member’s tax situation, that can mean the housing allowance is worth considerably more than the dollar amount given. For instance, I estimated last year that the BAH tax advantage might be equivalent to $3300/year in an “average” situation (in 2017 dollars). It could be significantly more or less (I’m estimating $5000 for my BAH tax advantage this year).

Now, a lot of bases have moved to “privatized” housing, so military members do receive the housing allowance but then it is turned over to the base housing provider to pay for rent and utilities. So don’t take the base housing /or/ BAH thing as exactly what’s happening. Technically they could live in base housing and receive BAH. Just remember that military members either get a housing allowance, or they get housing. Both mean the servicemember (and presumably any dependents) have a place to live.

Speaking of dependents…

(Dependents means non-military spouses, children, and other people the military member has a legal, financial responsibility to support)

Military members who have dependents receive larger housing allowances than members without dependents. This is because the member is assumed to need a larger dwelling to fit more people. But it’s binary – you either receive the with-dependent rate, or the without-dependent rate. Two E-5s assigned to the same location would receive the same with-dependent rate even if one was in a married-no-children couple and the other had a spouse and six children.

Except: dual-military (military members married to other military members) have some variations on how they receive BAH. That’s a whole ‘nother ball of wax, though, so I’m not going to get into it right now.

Just how much is the housing allowance worth? Let’s pull some examples.

CONUS BAH Rates

I am an O-4 (Air Force Major) without dependents stationed in the Washington DC area (until I move this summer). That means that I am receiving $2763/month in housing allowance. Sound like a lot? Yeah, it is! That’s because DC is a high cost of living area. It’s also because I’m an O-4, which is higher-than-not on the rank charts. The local BAH variance from the lowest rank to highest rank is $1779/month for an E-1 without dependents to $3315/month for an O7 or higher with dependents. Here are some other examples.

• Albuquerque, NM: varies from $972.00/month to $1731.00/month
• Tacoma, WA: varies from $1374.00/month to $2541.00/month
• Colorado Springs, CO: varies from $1230.00/month to $2070.00/month
• Twentynine Palms, CA: varies from $639.00/month to $1638.00/month

There are also Overseas Housing Allowance rates that can really change things up, but again that’s beyond the scope of an introductory post. For civilian readers, you can assume the overseas housing works basically the same way. It doesn’t, but the nuances aren’t important right now. Another post for another time.

If you want to learn more about BAH, everything you need to know is here: http://www.defensetravel.dod.mil/site/faqbah.cfm

And if you want to look up BAH rates for yourself, you can find the calculator here: http://www.defensetravel.dod.mil/site/bahCalc.cfm

Basic Allowance for Subsistence

I’ve already written a full post on this topic, so if you want all the details you can go to this post. If you want the CliffsNotes, here it is:

BAS is an allowance to ensure military members have money for food, aka subsistence. It doesn’t have nearly as much variation as BAH or even basic pay. There is simply an enlisted rate and an officer rate.

In 2018, the enlisted rate for BAS is $369.39/month. For officers, it is $254.39/month.

Like BAH, BAS is also untaxed. Unlike BAH, military members supporting a family don’t get any extra BAS. BAS is only intended to provide subsistence for the military member.

BAS is pretty simple. There are some variations (find one here) but for the most part it’s as simple as what you see above.

Putting It All Together

I would never, ever finish this post if I were to compile charts that showed the total basic pay + BAH + BAS amounts for every paygrade/TIS/location. Literally – never. By the time I got close to finishing the pay raises would come around and I’d have to start all over again.

Instead, let’s look at a couple of examples so you can see what military members actually get paid. For simplicity’s sake, I’m going to stick with only talking about CONUS locations.

I’ll start with myself. After all, the personal finance blogger community has been talking a lot about being transparent about where we are coming from income-wise. Not everybody uses exact numbers, but heck – my income is requested by the Executive branch and decided by the Legislative branch. It’s a matter of public record. So let’s lay it all out!

I’m not gonna lie – while I think civilians should know this information, I’m a little afraid to write it down because a lot of people think military members are underpaid. Then there are others who think we are evil and shouldn’t be paid. I have a feeling there will be some pushback both from people who think I’m exaggerating the numbers (because they think military members get paid peanuts) and people who think the numbers are way too high (because they think military members don’t deserve that much).

I’ve had plenty of people get mad at me for pointing out that military members make middle class incomes or more. It’s true and I’m about to prove it. Don’t shoot the messenger.

Okay. Let’s do this.

My Military Compensation

As I said earlier, I’m an O-4, no dependents, living in DC. I’ve just passed into my 14th year of service recently, so I got a pay bump for longevity. That means my new monthly compensation consists of (all in 2018 amounts):

• Basic pay: $7647.60
• BAH: $2763.00
• BAS: $254.39

I don’t have any special pays or allowances, so my total compensation for my military service is $10,664.99/month. Only $7647.60 is taxed, $3017.39 is not taxed. The annual compensation is $127,979.88.

Everybody freaking out about how much I get paid, please take a breath.

First, I didn’t always make this much. My first year, I was making a little under $3400/month counting all pays and allowances. My income has gone up over the years.

Second, realize that a good five figures of that income is due to where I am currently stationed. If I lived in a lower cost of living area, my income would be much lower too. In fact, when I move this summer my new BAH will be well under half what it currently is.

Third, this paycheck comes after lots and lots of 16 hour days, and holidays away from home, and not having too much control over my life. Of course it’s also been accompanied by a ton of really cool life experiences, so if you want to learn more about joining the military let me know! Or hey, go read this for more information about military benefits.

Fourth – I am VERY aware that I make a nice chunk of money and I make no bones about that. You aren’t going to hear me saying that I’m underpaid. I’m incredibly grateful that I get to do such a cool job and make a nice income from it.

Now let’s move on because I want to show that other military members also make decent money.

An E-3, No Dependents, 2.5 Years of Service, Stationed at Fort Bliss (El Paso, TX)

This scenario is for a young Soldier (possibly 21 years old) living in a relatively low cost of living area. This Soldier probably wouldn’t be living off base, but like I indicated above I think you should always include the BAH amount that person would receive to give a closer approximation to civilian compensation.

• Basic pay: $2052.30
• BAH: $924.00
• BAS: $369.39

Paycheck: $3345.69/month, of which $2052.30 is taxed and $1293.39 is not. Annual compensation of $40,148.28. That means a young enlisted Soldier living in the dorms is earning just under the median household income for El Paso when you consider the value they receive for their free housing – not the ~$29,000 they see in their paycheck.

An E-5, With Dependents, 7 Years of Service, Stationed at Naval Base San Diego

This scenario is for a midgrade enlisted Seaman (maybe 27 years old) living in a very high cost of living area. This person would live off base or in base housing, not a dorm. They have a family of 4.

• Basic pay: $2925.30
• BAH: $2532.00
• BAS: $369.39

Paycheck: $5826.69/month, of which $2925.30 is taxed and $2901.39 is not. Annual compensation of $69,920.28.

An E-6 (13 Years) Married To An E-7 (15 Years), No Dependents, Stationed at Pope AFB (Fayetteville, NC)

This scenario is for a dual-mil couple , early-to-mid thirties, living in a medium cost of living area. They live off base.

• Basic pay: $3776.70 + $4368.90 = $8145.60
• BAH: $1032 + $1110 = $2142.00
• BAS: $369.39 + $369.39 = $738.78

Combined Paycheck: $11,026.38/month, of which $8145.60 is taxed and $2880.78 is not. Annual compensation of $132,316.56.

An O-2, With Dependents, 3 Years of Service, Stationed in Marine Corps Air Station Yuma (Yuma, AZ)

This junior Marine officer (possibly 28 years old) is living in a medium cost of living area. This person lives off base. They have a family of 3.

• Basic pay: $4696.20
• BAH: $1221.00
• BAS: $254.39

Paycheck: $6171.59/month, of which $4696.20 is taxed and $1475.39 is not. Annual compensation of $74,059.08.

And then as I said, there are dozens of other pays and allowances that military members may receive for various things. That can add anything from a few hundred to many thousands of dollars to a military member’s annual compensation. But the common things all military members receive is basic pay, BAH (or a dwelling), and BAS (or provided food).

That’s the basics to understanding military pay and allowances. Surprised? Confused? Let me know!