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:
Enlisted personnel, warrant officers, and commissioned warrant officers can exclude the following amounts from their income:
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.
The amount of pay subject to the combat zone tax exclusion each month for O-1 and above is limited to the monthly basis pay for the senior E-9 of each branch plus the monthly hostile fire pay amount. For 2015 this amount is $8,222.10.
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.
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.
Afghanistan area: By Executive Order No. 13239, Afghanistan (and airspace above) was designated as a combat zone beginning September 19, 2001. On December 14, 2001, the following countries were certified by the Department of Defense for combat zone tax benefits due to their direct support of military operations in the Afghanistan combat zone.
Note. For the Philippines only, the personnel must be deployed in conjunction with Operation Enduring Freedom supporting military operations in the Afghanistan combat zone.
The Kosovo area: By Executive Order No. 13119, the following locations (including airspace above) were designated as a combat zone beginning March 24, 1999.
Note. The combat zone designation for Montenegro and Kosovo (previously a province within Serbia) under Executive Order 13119 remains in force even though Montenegro and Kosovo became independent nations since EO 13119 was signed.
Arabian peninsula: By Executive Order No. 12744, the following locations (and airspace above) were designated as a combat zone beginning January 17, 1991.
The following military service does not qualify as service in a combat zone:
Military service outside a combat zone is considered to be performed in a combat zone if:
Military pay received for this service will qualify for the combat zone exclusion if the other requirements are met.
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.
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.
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