IRS Confirms No Taxes on $1776 Warrior Dividend
In late 2025, the Department of Defense announced a one-time bonus for currently serving military members. A payment of $1,776 was made to troops in honor of the year of American independence (1776) and the nation’s 250th anniversary.
The Defense Finance and Accounting Service began distributing the bonus in late 2025. Most eligible troops received the full $1,776 in their accounts before the end of 2025, and the dividend appears as a unique entitlement line separate from base pay. But at the time, it was unclear to many whether the bonus would be treated as a tax liability in 2026.
The IRS has confirmed that it will not be.
Why? The bonus payment comes from approximately $2.9 billion within earlier legislation meant to supplement military housing entitlements. The Department of Defense used $2.6 billion of those funds to offer the bonus, paid as a supplemental housing allowance, and therefore tax-exempt.
IRS Confirms No Taxes on $1776 Warrior Dividend
You read that correctly: by categorizing the $1,776 payment as a housing benefit rather than a standard bonus, the bonus funds qualify as a non-taxable military benefit.
The Internal Revenue Service and the Department of the Treasury confirmed on January 16, 2026, that the $1,776 Warrior Dividend issued to 1.5 million service members is completely tax-free. Service members will not see federal income tax withholding on the payment and are not required to report the $1,776 as taxable income on their 2025 federal tax returns.
The IRS has also clarified that the Warrior Dividend will not appear on the 2025 Form W-2.
Because the dividend is a non-taxable allowance, it will not push service members into higher tax brackets or affect eligibility for the Earned Income Tax Credit (EITC).
Who Qualifies?
The Department of Defense published qualifying rules for the bonus based on personnel status as of November 30, 2025. All members of the Army, Navy, Air Force, Marine Corps, and Space Force in pay grades E-1 through O-6 qualified. Reserve component members qualified if they served on active-duty orders for 31 consecutive days or more as of the November 30 cutoff date.
General and flag officers in ranks O-7 through O-10 were ineligible for the payment. While not under the Department of Defense, the Coast Guard authorized a separate payment for its members to ensure parity across the joint force.
While the Warrior Dividend was a one-time payment, some administration officials have discussed the possibility of future dividend payments linked to federal revenue. However, any subsequent payments will require new Congressional action.
About the author
Editor-in-Chief Joe Wallace is a 13-year veteran of the United States Air Force and a former reporter/editor for Air Force Television News and the Pentagon Channel. His freelance work includes contract work for Motorola, VALoans.com, and Credit Karma. He is co-founder of Dim Art House in Springfield, Illinois, and spends his non-writing time as an abstract painter, independent publisher, and occasional filmmaker.
