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.
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.
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.
Persian Gulf area: By Executive Order No. 12744, the following locations (and airspace) were designated as a combat zone beginning January 17, 1991.
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):
In support of Operation Iraqi Freedom (Arabian Peninsula Areas combat zone):
The following military service does not qualify as service in a combat zone:
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:
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:
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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