Understanding your military tax exemptions can seem complicated; but it's those military tax breaks that weigh in at hundreds, even thousands of dollars more on your basic military enlisted pay scale.
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More Tax Free Military Pay in the Combat Zone

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If you are a member of the U.S. Armed forces - enlisted member, warrant officer, or commissioned warrant officer - stationed in a combat zone, you should know that military pay received during any portion of any month served in a combat zone excludes your pay for that entire month from your annual taxable income.

Understanding your military tax exemptions can seem complicated; but it's those military tax breaks that weigh in at hundreds, even thousands of dollars more on your basic military enlisted pay scale. For example, you may also exclude military pay earned while you are hospitalized as a result of wounds, disease, or injury in the combat zone. And, enlisted military and officers alike may be entitled to hostile fire or imminent danger pay.

ELIGIBILITY FOR COMBAT ZONE TAX EXCLUSION

Combat zone tax exclusion is for registered members of the U.S. Armed Forces. This includes all regular and Reserve components of the uniformed services under the Secretaries of Defense, Army, Navy, and Air Force, and the Secretary of Homeland Security including the Coast Guard.

It does not include civilians serving in the Merchant Marine; federal civilian employees; or civilian defense contractors working with U.S. forces operating in a combat zone. However, civilians working in combat zones may be eligible for an extension on tax deadlines. Civilian taxpayers covered by tax-relief provisions should put the words "COMBAT ZONE" and their deployment date in red at the top of their tax returns. Members of the military do not need to add "COMBAT ZONE" and their deployment date at the top of tax returns because the U.S. Department of Defense informs the IRS about military members serving in a combat zone.

TAX EXEMPT HOSPITALIZATION, ANNUAL LEAVE, REENLISTMENT BONUS

You should be aware that Combat Zone tax exclusions apply to every individual military paycheck. If two married military members are both serving in combat zones, each receives the tax exclusion for their respective military pay.

The Combat Zone tax exclusion includes serving in the airspace over a determined combat zone. If you are stationed on a ship outside a combat zone and fly over a combat zone, the combat zone tax exclusion applies to the pay you receive during the time you are stationed.

If you are hospitalized as a direct result of injuries received during combat duty, the Combat Zone tax exclusion is applied to your military pay during hospitalization, for up to two years after termination of your service in the combat zone. Hospitalized commissioned officers also receive this combat zone tax exclusion, based on maximum monthly enlisted pay scales.

Annual leave pay is also eligible for combat zone income tax exclusion, and it applies to pay accrued during any month in which an enlisted servicemember was stationed in a combat zone. The tax exclusion covers the maximum enlisted pay received.

Re-enlistment bonuses may also fall under combat pay tax exemption, if you re-enlist while you're serving in a combat zone.

IMMINENT DANGER/HOSTILE FIRE PAY

Although serving outside the combat zone does not entitle you to the combat zone tax exclusion, you may be eligible for tax benefits on your Hostile Fire/Imminent Danger pay.

The Department of Defense has certified areas that meet the requirements for hostile fire/imminent danger, which are defined as areas directly supporting military operations in determined combat zones.

Hostile Fire/Imminent Danger pay is included on your W-2 tax form. Your service branch will provide the W-2 forms that certify your entitlement.

MORE TAX EXEMPT COMBAT PAY

You may be entitled to tax exemption for a variety of military duties in a combat zone including:

-Military pay for duties serving in clubs, messes, post and station theaters, and other non-appropriated 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 for your period of service in a combat zone (provided a full year's service is performed to earn the repayment).


Retirement pay and pensions do not qualify for the combat zone exclusion.



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