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. 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).
|Your combat zone exclusion only applies to your earnings -- you still have to pay tax on your investments or interest income.You do not need to claim combat zone tax exclusion on your tax return because this type of income is not included in the wages reported on your Form W-2. |
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. 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. The following areas have been designated as combat zones:Afghanistan. This includes the airspace above Afghanistan.The Kosovo area. The following locations (including air space above) have been designated as a combat zone and a qualified hazardous duty area:
- Federal Republic of Yugoslavia (Serbia/Montenegro)
- The Adriatic Sea
- The Ionian Sea - north of the 39th parallel (including all of the airspace in connection with the Kosovo operation.)
|If you are a servicemember stationed in a combat zones and make phone calls, you should know that you are exempt from the federal excise tax on toll telephone service, provided a properly executed certificate of exemption is furnished to the telephone service provider receiving payment for the call.|
Persian Gulf area. The following locations (including air space above) have been designated as a combat zone:
- 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
Serving in a Combat Zone
- Service in a combat zone includes any periods you are absent from duty because of sickness, wounds, or leave.
- 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.
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 ExclusionIf 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 two 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.
Notifying the IRS by E-Mail about Combat Zone Service:Working with the Department of Defense, the Internal Revenue Service identifies taxpayers who are serving in a combat zone so that the IRS may suspend compliance actions, such as audits or enforced collections, until 180 days after the taxpayer has left the zone. Taxpayers qualifying for such combat zone relief may also notify the IRS directly of their status through a special e-mail address: email@example.com
. They should provide name, stateside address, date of birth and date of deployment to the combat zone. Note: Do not include any social security numbers in an e-mail. This notification may be made by the taxpayer, spouse, or authorized agent or representative. The IRS cannot provide tax account information by e-mail. Therefore, they will send responses to any questions about the taxpayer's account by regular mail to the address IRS records for the person, within two business days. The IRS may provide general answers to questions regarding the status of individual combat zone updates via e-mail. Please submit general tax law questions to our Tax Law Questions page. IRS Publication 3, Armed Forces' Tax Guide
, has information on various tax issues affecting members of the U.S. Armed Forces, including reservists, decedents, and persons missing in action.
© Copyright 2018 Military.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.