Combat Zone Tax Exclusions

Military.com

If you are a member of the U.S. Armed Forces who serves in a combat zone (defined below), you can exclude certain pay from your income when determining your taxes. The following is a summary of combat zone tax exclusions:

What Can be Excluded

Enlisted personnel, warrant officers, and commissioned warrant officers can exclude the following amounts from their income:

Active duty pay earned in any month you served in a combat zone
Imminent danger/hostile fire pay
A reenlistment bonus if the voluntary extension or reenlistment occurs in a month you served in a combat zone.
Pay for accrued leave earned in any month you served in a combat zone. The DoD must determine that the unused leave was earned during that period.
Pay received for duties as a member of the Armed Forces in clubs, messes, post and station theaters, and other nonappropriated fund activities. The pay must be earned in a month you served in a combat zone.
Awards for suggestions, inventions, or scientific achievements you are entitled to because of a submission you made in a month you served in a combat zone.
Student loan repayments that are attributable to your period of service in a combat zone (provided a full year's service is performed to earn the repayment).

You do not have to receive the pay while you are in a combat zone, are hospitalized, or in the same year you served in a combat zone. However, your entitlement to the pay must have fully accrued in a month during which you served in the combat zone or were hospitalized as a result of wounds, disease, or injury incurred while serving in the combat zone.

Partial (Month) Service in a Combat Zone

If you serve in a combat zone for one or more days during a particular month, you are entitled to an exclusion for that entire month.

Definition of Combat Zone

A combat zone is any area the President of the United States designates by Executive Order as an area in which the U.S. Armed Forces are engaging or have engaged in combat. An area usually becomes a combat zone and ceases to be a combat zone on the dates the President designates by Executive Order.

Designated Combat Zones

Combat zones are designated by an Executive Order from the President as areas in which the U.S. Armed Forces are engaging or have engaged in combat. There are currently three such combat zones (including the airspace above each):

Afghanistan: By Executive Order No. 13239, Afghanistan (and airspace above) is designated a combat zone beginning September 19, 2001.

The Kosovo area: By Executive Order No. 13119 and Public Law 106-21, the following locations (including air space) were designated as a combat zone and a qualified hazardous duty area beginning March 24, 1999.

Federal Republic of Yugoslavia (Serbia/Montenegro)
Albania
The Adriatic Sea
The Ionian Sea - north of the 39th parallel (including all of the airspace in connection with the Kosovo operation.)

Persian Gulf area: By Executive Order No. 12744, the following locations (and airspace) were designated as a combat zone beginning January 17, 1991.

The Persian Gulf
The Red Sea
The Gulf of Oman
The part of the Arabian Sea that is north of 10 degrees north latitude and west of 68 degrees east longitude
The Gulf of Aden
The total land areas of Iraq, Kuwait, Saudi Arabia, Oman, Bahrain, Qatar, and the United Arab Emirates

In addition, the Department of Defense has certified these locations for combat zone tax benefits due to their direct support of military operations, beginning on the listed dates:

In support of Operation Enduring Freedom (Afghanistan combat zone):

Pakistan, Tajikistan and Jordan - Sept. 19, 2001
Incirlik Air Base, Turkey - Sept. 21, 2001 through Dec. 31, 2005
Kyrgyzstan and Uzbekistan - Oct. 1, 2001
Philippines (only troops with orders referencing Operation Enduring Freedom) - Jan. 9, 2002
Yemen - Apr. 10, 2002
Djibouti - July 1, 2002
Israel - Jan. 1 through July 31, 2003
Somalia - Jan. 1, 2004

In support of Operation Iraqi Freedom (Arabian Peninsula Areas combat zone):

Turkey - Jan. 1, 2003 through Dec. 31, 2005
the Mediterranean Sea east of 30? East longitude - Mar. 19 through July 31, 2003
Jordan - Mar. 19, 2003
Egypt - Mar. 19 through Apr. 20, 2003

Serving in a Combat Zone

Service in a combat zone includes any periods you are absent from duty because of sickness, wounds, leave, or TAD/TDY, unless leave, TAD/TDY includes the full calendar month.
If, as a result of serving in a combat zone, a person becomes a prisoner of war or is missing in action, that person is considered to be serving in the combat zone so long as he or she keeps that status for military pay purposes.
You are considered to be serving in a combat zone if you are either assigned on official temporary duty to a combat zone or you qualify for hostile fire/imminent danger pay while in a combat zone.

Nonqualifying Presence in Combat Zone

The following military service does not qualify as service in a combat zone:

Presence in a combat zone while on leave from a duty station located outside the combat zone,
Passage over or through a combat zone during a trip between 2 points that are outside a combat zone, and
Presence in a combat zone solely for your personal convenience.

Qualified Hazardous Duty Area

Beginning November 21, 1995, a "qualified hazardous duty area" in the former Yugoslavia is treated as if it were a combat zone. The qualified hazardous duty area includes:

Bosnia and Herzegovina
Croatia
Macedonia

Iraqi Freedom: Personnel stationed in Turkey and Israel and deployed to Mediterranean waters east of 30 degrees east longitude are now eligible for combat zone tax relief. Also, service members deployed in the same Mediterranean water area now qualify for imminent danger pay. Effective date for the added combat zone tax relief in Turkey and Israel is retroactive to Jan. 1, 2003. Water-deployed eastern Mediterranean personnel started their tax relief status on April 11, the same date they became eligible for imminent danger pay. A previous executive order has covered combat zone designations for countries such as Iraq, Kuwait, Saudi Arabia, Oman, Bahrain, Qatar and the United Arab Emirates.

Members of the Armed Forces deployed overseas away from their permanent duty station in support of operations in a qualified hazardous duty area, or performing qualifying service outside the qualified hazardous duty area, are treated as if they are in a combat zone solely for the purposes of the extension of deadlines. These personnel are not entitled to other combat zone tax benefits. However, if you satisfy additional requirements, you may be entitled to full combat zone tax benefits:

Qualifying Service Outside Combat Zone

Military service outside a combat zone is considered to be performed in a combat zone if:

The service is in direct support of military operations in the combat zone, and
The service qualifies you for special military pay for duty subject to hostile fire or imminent danger.

Military pay received for this service will qualify for the combat zone exclusion if the other requirements are met.

Amount of Exclusion

If you are an enlisted member, warrant officer, or commissioned warrant officer and you serve in a combat zone during any part of a month, all of your military pay for that month is excluded from your income. You can also exclude military pay earned while you are hospitalized as a result of wounds, disease, or injury incurred in the combat zone. The exclusion of your military pay while you are hospitalized does not apply to any month that begins more than 2 years after the end of combat activities in that combat zone. Your hospitalization does not have to be in the combat zone.

If you are a commissioned officer (other than a commissioned warrant officer), you may exclude your pay according to the rules just discussed. However, the amount of your exclusion is limited to the highest rate of enlisted pay (plus imminent danger/hostile fire pay you received) for each month during any part of which you served in a combat zone or were hospitalized as a result of your service there.

Hospitalized While Serving in the Combat Zone

If you are hospitalized while serving in the combat zone, the wound, disease, or injury causing the hospitalization will be presumed to have been incurred while serving in the combat zone unless there is clear evidence to the contrary.

Hospitalized after leaving the combat zone: In some cases the wound, disease, or injury may have been incurred while you were serving in the combat zone, even though you were not hospitalized until after you left.