Which of the following is a nontaxable allowance?

Study for the Navy OCS Division Officer Test. Prepare with flashcards and multiple choice questions. Each question comes with hints and explanations. Get ready to succeed on your exam!

Multiple Choice

Which of the following is a nontaxable allowance?

Explanation:
Basic Allowance for Housing is designed to offset housing costs, not to compensate for time worked or performance. Because it’s a housing subsidy rather than earned wages, it’s excluded from federal income tax and doesn’t add to taxable income. In contrast, base salary is regular earned pay and is taxed; overtime pay is additional compensation for extra hours worked and is taxed as ordinary income; bonus pay is also taxable income. So the housing allowance stands out as the nontaxable option among these.

Basic Allowance for Housing is designed to offset housing costs, not to compensate for time worked or performance. Because it’s a housing subsidy rather than earned wages, it’s excluded from federal income tax and doesn’t add to taxable income. In contrast, base salary is regular earned pay and is taxed; overtime pay is additional compensation for extra hours worked and is taxed as ordinary income; bonus pay is also taxable income. So the housing allowance stands out as the nontaxable option among these.

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