Combat Zone Tax Exclusion

Under Internal Revenue Code section 112, a member who serves in a combat zone, or in a qualified hazardous duty area, excludes military pay earned in any month of service there. One day in the zone covers the whole month. Enlisted members, warrant officers and commissioned warrant officers exclude all military pay for the month. Commissioned officers exclude up to the highest rate of enlisted pay plus imminent danger or hostile fire pay. Reenlistment bonuses signed in the zone, and the matching share of student loan repayments, are excluded too. There is nothing to file: the pay office leaves the excluded pay out of the W-2 box 1. Combat pay can still be counted toward the earned income credit by election. Deadlines to file and pay federal tax are also extended for service in a combat zone. IRS Publication 3 is the authoritative guide.