I don't think it's that simple. I am retired from the army and working as a JTROC instructor. BAH is not separated out in my paycheck... so my full compensation, including BAH, is listed in box 1 on my W2. My total compensation is based on an amount that includes BAH, but since I am no longer active duty I am unsure if its taxable. And if it is not, how do I deduct that?