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Armed Service Tax Credits

If you’re a member of the U.S. Armed Forces serving in a combat zone, you can exclude certain pay from your income.

A combat zone is an area designated by the U.S. President by Executive Order as an area in which U.S. Armed Forces are engaging in or have engaged in combat.

Service outside a combat zone is considered to be inside a combat zone if the service is in direct support of combat zone military operations.

Service outside a hazardous duty area for support of operations in a hazardous duty area is treated as serving in a combat zone only for the purpose of getting an extension deadline.

The following income received during service in a combat zone doesn’t have to be reported as gross income:

If you're a commissioned officer (other than a commissioned warrant officer), the combat pay exclusion for any month is limited to the highest rate on enlisted pay (plus hostile fire/imminent danger pay, if any).

You do not claim an exclusion for combat pay on your tax return.

If you served in a combat zone for 1 or more days during a particular month, you’re allowed the above exclusions for that entire month. Combat zone service includes any periods you are absent from duty due to illness, wounds or leave. A person is considered to be serving in a combat zone if he or she becomes a prisoner of war or is missing in action if that status is kept for military pay purposes.

You can also exclude military pay earned while hospitalized (you don’t have to be hospitalized in the combat zone). Your hospitalization must be due to having served in a combat zone. This is true even if you’re hospitalized after combat zone service.

Combat Zone Considerations

Military service outside the combat zone is, for tax purposes, considered to be inside a combat zone if the service is in direct support of combat zone military operations and the service qualifies you for special military pay for duty subject to hostile fire or imminent danger.

Situations not considered to be in a combat zone:

Hazardous Duty Areas

Members of the Armed Forces who serve outside a hazardous duty area in support of operations in a hazardous duty area are treated as serving in a combat zone only for the purpose of getting an extension.

Meeting additional requirements may entitle you to full combat zone tax benefits.