The “Warrior Dividend” is a one‑time $1,776 cash bonus that was paid in December 2025 to about 1.45 million U.S. service members. Legally, it was structured as a supplemental Basic Allowance for Housing (BAH) payment funded by a $2.9 billion housing-allowance appropriation in the One Big Beautiful Bill Act that Congress passed and President Donald J. Trump signed in July 2025. Trump then directed the Pentagon to use that housing money for this special payment, describing it as a way to thank troops for their service and to mark 250 years since America’s founding and the U.S. military’s defense of the nation, and the War Department framed it as part of broader efforts to improve troops’ quality of life and housing.
For tax purposes, the Warrior Dividend is treated as a supplemental Basic Allowance for Housing (BAH), which is a “qualified military benefit.” The IRS has said these December 2025 supplemental BAH payments “are not to be included in income …; they are not taxable,” meaning they are excluded from federal gross income and federal income tax. Because BAH is a nontaxable allowance, standard practice is that it is also not subject to Social Security or Medicare payroll (FICA) taxes and does not appear in W‑2 taxable wages; financial and military‑pay guides state that BAH is exempt from federal, state, and Social Security taxes. Most states base their income tax on federal taxable income, so they generally do not tax BAH‑type allowances either. In plain terms, the Warrior Dividend should not be subject to federal income tax or FICA, and in almost all cases it will be tax‑free for state income tax as well.
Because the Warrior Dividend is treated as a nontaxable supplemental BAH payment, it is not included in taxable wages. The IRS guidance says these supplemental BAH payments “are not to be included in income,” and BAH‑type allowances “will not be included in the wages, tips and compensation amount shown in box 1 on your IRS Form W‑2,” according to BAH tax guidance. In practice, the payment shows up on your December 2025 Leave and Earnings Statement (LES) as a housing‑allowance supplement or similar line item, but it should not appear as taxable wages on your W‑2 and should not generate a separate Form 1099.
Eligibility was broad but not truly “everyone in uniform.” According to the Pentagon, White House, and IRS descriptions:
Yes. The IRS determination explicitly covers the supplemental BAH (“Warrior Dividend”) payments that were made in December 2025 and says they “are not to be included in income …; they are not taxable.” That means for 2025 tax returns the correct treatment is to exclude the Warrior Dividend from federal gross income, regardless of when a return is filed. The IRS has not issued a special procedure for people who may already have reported it as taxable; in that situation, the normal remedy would be to file an amended return (Form 1040‑X) to remove it from income.
The tax treatment is confirmed in IRS News Release IR‑2026‑09, titled “Treasury, IRS: Supplemental basic allowance for housing payments to members of the military are not taxable,” dated Jan. 16, 2026. It is published on IRS.gov and also listed on the IRS “News releases for current month” page under that date.
Because the Warrior Dividend is legally a Basic Allowance for Housing supplement, state tax treatment should follow the normal rules for BAH. BAH is widely recognized as a tax‑exempt military allowance: financial and military‑pay guides note that BAH can be excluded from gross income and is exempt from federal, state, and Social Security taxes, and it does not appear in W‑2 taxable wages. Since most states start from federal taxable income and BAH‑type allowances are not included there, state tax agencies will effectively treat the Warrior Dividend as tax‑free by default. In theory, a state could try to create a special rule, but there is no indication any state plans to tax this payment separately.