Nontaxable Combat Pay
If you’re a member of the U.S. armed forces who serves in a combat zone, you:
- Might qualify to exclude certain pay from your income
- Have more time to make a qualified contribution to an IRA
Both of these must apply for a place to be considered a combat zone:
- It’s an area where U.S. armed forces are engaging in or have engaged in combat.
- The area is designated as a combat zone by a presidential executive order.
Combat zone income
You don’t have to report income received during service in a combat zone as gross income.
For any month you served in a combat zone, you don’t have to report these types of income:
- Active duty pay
- Imminent-danger pay and hostile-fire pay
- Reenlistment bonus
- Pay for accrued, unused leave, as determined by the Department of Defense
- Pay for duties as a member of the armed forces in:
- Post and station theaters
- Other non-appropriated fund activities
- Awards for suggestions, inventions, or scientific achievements. This applies if you made your submission in a month you served in a combat zone.
- Student loan repayments if you served in a combat zone in the year of service required to earn the repayment
If you’re a commissioned officer, the combat pay exclusion for any month is limited to the total of:
- The highest rate of enlisted pay
- Hostile-fire pay
- Imminent-danger pay
This limit doesn’t apply to commissioned warrant officers.
You don’t claim an exclusion for combat pay on your return. The excludable amount shouldn’t be in your W-2, Box 1 wages. If an excludable amount is in your Box 1 wages, you should get a corrected W-2. Nontaxable combat pay will usually be shown on your W-2, Box 12 with code Q.
If you served in a combat zone for one or more days in a particular month, you’re allowed the above exclusions for that entire month. Combat zone service includes periods when you’re:
- Absent from duty due to illness, wounds, or leave
- A prisoner of war or missing in action, if that status is kept for military-pay purposes
In some cases, you can also exclude military pay earned while hospitalized after leaving a combat zone. Your hospitalization must be due to a wound, disease, or injury incurred while you were serving in a combat zone.
Combat zone considerations
For tax purposes, military service outside a combat zone is treated the same as inside a combat zone if both of these apply:
- The Department of Defense determines the service is in direct support of combat zone military operations.
- The service qualifies you for special military pay for duty subject to hostile fire or imminent danger.
You’re not considered to be in a combat zone if any of these apply:
- You’re in a combat zone during leave from a duty station located outside the combat zone.
- You pass over or through a combat zone during a trip between two points outside a combat zone.
- You’re in a combat zone only for your personal convenience.
To learn more, see these tax tips:
- Military Income Inclusions
- Military Income Exclusions
- Military Moving Expenses
- Military Extensions
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Adjusted Gross Income is simply your total gross income minus specific deductions. Additionally, your Adjusted Gross Income is the starting point for calculating your taxes and determining your eligibility for certain tax credits and deductions that you can use to help you lower your overall tax bill.